THE 

TAXATION  OF  CORPORATIONS 

AND 

PERSONAL  INCOME 

IN  NEW  YORK 


BY 

HENRY  M.  POWELL 

OF  THE  NEW  YORK  BAR 


Revised  Edition 


NEW  YORK 

CLARK  BOARDMAN  CO.,  LTD. 
1919 


COPYRIGHT,  1919j 
BY  HENRY  M.  POWELL 


PREFACE 

In  June,  1918,  the  author  in  his  preface  to  "The  New  York 
Franchise  Tax  on  Manufacturing  and  Mercantile  Corporations," 
made  the  statement  in  calling  attention  to  the  adoption  by  the 
states  of  the  federal  plan  of  income  taxation,  that  "we  may  there- 
fore look  forward  to  the  extension  of  the  principle  of  net  income 
taxation  as  a  permanent  feature  of  our  state  revenue  system."  At 
that  time,  there  had  been  in  successful  operation  for  more  than  a 
year,  in  the  State  of  New  York,  the  act  taxing  manufacturing  and 
mercantile  corporations  on  net  income  based  on  their  return  to  the 
United  States  Treasury  Department.  This  law  has  now  been  ex- 
tended by  the  New  York  Legislature  of  1919  so  as  to  apply  to  all 
business  corporations,  including  personal  service  corporations,  and 
the  rate  has  been  increased  from  three  to  four  and  one-half  per  cent. 

The  same  Legislature  acting  upon  the  recommendations  of  the 
Joint  Legislative  Committee  on  Taxation,  headed  by  Senator  Fred- 
erick M.  Davenport  and  Assemblyman  Franklin  W.  Judson,  passed 
a  law  taxing  personal  incomes  modeled  on  the  federal  plan  (Article 
16  of  the  Tax  Law),  which,  together  with  Articles  9  and  9a  gov- 
erning the  taxation  of  public  service  corporations,  banks,  insurance 
companies  and  business  corporations,  forms  the  subject  of  the  pres- 
ent volume.  Parts  I,  II  and  III  cover  the  taxation  of  corporations 
and  the  remedy  by  certiorari.  Part  IV  treats  of  the  tax:  on  per- 
sonal incomes.  These  subjects  may  not  appear  at  first  glance  to 
be  closely  related,  and  yet,  the  general  scheme  of  both  New  York 
acts  is  taken  from  the  federal  income  tax  laws.  In  their  state 
administration  they  are  closely  allied  by  reason  of  the  fact  that 
the  common  remedy  of  certiorari  is  applied  generally  to  the  cor- 
poration taxes  as  well  as  to  the  personal  income  tax.  So,  too,  in 
their  method  of  collection,  they  are  similar. 

It  was  for  these  reasons  that  the  author  combined  the  revised 

iii 


IV  PREFACE 

edition  of  his  former  work  on  the  taxation  of  corporations  with  a 
commentary  on  the  substantive  and  case  law  on  the  taxation  of 
personal  incomes.  It  is  true  that  there  have  been  no  adjudications 
on  the  New  York  Income  Tax  Act,  which  has  just  gone  into  effect, 
but  the  federal  law  is  replete  with  rules,  regulations  and  decisions, 
which  have  been  made  use  of  in  Part  IV  of  the  present  volume. 
The  State  Comptroller's  rules  and  regulations  have  also  been  made 
a  part  of  the  book  under  the  appropriate  chapter,  and  decisions  in 
recent  cases  affecting  the  Corporation  Income  Tax  Law  are  a  sup- 
plementary feature. 

The  difficulty  of  accurately  presenting  a  book  on  a  complex  sub- 
ject like  the  Income  Tax  within  thirty  days  after  the  end  of  the 
legislative  session  will  be  apparent  to  the  professional  if  not  to  the 
lay  reader.  If  errors  and  omissions  appear  in  the  book,  under  these 
circumstances,  it  is  hoped  that  the  reader  will  be  merciful  in  his 
criticism,  particularly  since  an  effort  has  been  made  to  publish  the 
book  in  time  to  make  it  useful  to  lawyers,  corporation  managers 
and  others,  before  the  time  expired  to  file  the  annual  state  tax 
reports. 

HENRY  M.  POWELL. 

June  30,  1919. 

51  Chambers  Street,  New  York  City. 


TABLE  OF  CONTENTS 


PAET  I.    THE  CORPORATION  TAX  (ARTICLE  9) 

PTEK  PAGE 

I    INTRODUCTORY      3 

II    THE  SYSTEM  OF  TAXING  STOCK  CORPORATIONS  FOR  STATE 

PURPOSES 7 

III  ORGANIZATION  TAX  PAID  BY  DOMESTIC  CORPORATIONS  .  11 

IV  LICENSE  PAID  BY  FOREIGN  CORPORATIONS     ....  14 
V    ANNUAL  FRANCHISE  TAX  ON  CAPITAL  STOCK  (§182)      .  23 

VI    TAXATION  OF  FOREIGN  CORPORATIONS  (§§  181,  182)      .  45 
VII    TAX  ON  TRANSPORTATION,  TRANSMISSION,  HEAT,  LIGHT, 
POWER  AND   WATER  COMPANIES  BASED   ON  GROSS 

EARNINGS 50 

VIII    TAX  ON  INSURANCE  COMPANIES  BASED  ON  GROSS  PREM- 
IUMS    56 

IX    TAX  ON  TRUST  COMPANIES,  SAVINGS  BANKS,  INVEST- 
MENT COMPANIES  AND  FOREIGN  BANKERS  ....  61 
X    REPORTS  TO  BE  FILED  AND  STATEMENT  OF  TAX  65 


PART  II.    THE  BUSINESS  CORPORATIONS  TAX  (ARTICLE  9-a) 

XI    AMENDMENTS  OF  1919  TO  ARTICLE  9-a 77 

XII    SUBJECTS  OF  TAXATION 81 

XIII  WHAT  is  NET  INCOME 84 

XIV  FOREIGN  CORPORATIONS 91 

XV    REPORTS  OF  CORPORATIONS.    SEGREGATION  OF  ASSETS  .  99 

XVI    EXEMPTION  FROM  PERSONAL  PROPERTY  TAX.  FIXTURES  121 
XVII    TEMPORARY  PROVISIONS  FOR  CREDITING  CORPORATIONS 

WITH  TAXES  PAID.    SCHOOL  TAXES 125 

XVIII    APPORTIONMENT    OF  TAX    BETWEEN    STATE,    CITIES, 

TOWNS  AND  VILLAGES 132 

XIX    FRANCHISE  TAX  ON  BUSINESS  CORPORATIONS  (TEXT  of 

THE  LAW) 135 


Tl  TABLE   OF   CONTENTS 

PART  III.    REMEDIES,  CERTIORARI,  COLLECTION 

CHAPTBB  PAGE 

XX    REMEDIES 155 

XXI    POWERS    OF    TAX    COMMISSION    AND    COMPTROLLER. 

PENALTIES.    COLLECTION.    SECRECY.    LIMITATIONS  .  163 

XXII    CERTIORARI 171 

PART  IV.    THE  TAX  ON  PERSONAL  INCOMES 

XXIII  BRIEF  ANALYSIS  OF  THE  LAW 185 

XXIV  CONSTITUTIONALITY 190 

XXV    RESIDENCE  FOR  PERSONAL  INCOME  TAXATION     .     .      .     198 

XXVI    PAYMENT  AND  INFORMATION  AT  THE  SOURCE.   WITHHOLD- 
ING. RULES  AND  REGULATIONS  OF  STATE  COMPTROLLER    205 
XXVII    EXEMPTION  OF  INTANGIBLE  PERSONAL  PROPERTY  FROM 

LOCAL  TAXATION 214 

XXVIII    ESTATES  AND  TRUSTS 217 

XXIX    TABLE  OF  PARALLEL  SECTIONS  IN  FEDERAL  AND  STATE 

INCOME  TAX  ACTS 222 

XXX    TEXT  OF  NEW  YORK  INCOME  TAX  ACT  WITH  CORRESPOND- 
ING FEDERAL  REGULATIONS  226 


FORMS 

FORM   101 — CERTIFICATE  TO  BE  FILED  BY  WITHHOLDING 

AGENT  UNDER  §366  OF  THE  TAX  LAW 345 

AFFIDAVIT  BY  CORPORATION  THAT  HAS  DISCONTINUED  BUSI- 
NESS    346 

FORMS  IN  CERTIORARI  PROCEEDINGS 347 

REPORTS  BY  CORPORATIONS  UNDER  ARTICLES  9  AND  9a   .  354  et  seq. 

TABLE  OF  CASES 365 

INDEX  TO  CORPORATION  TAXES 373 

INDEX  TO  TAX  ON  PERSONAL  INCOME  382 


PART  I 

THE   CORPORATION  TAX 

(Article  9  of  the  Tax  Law.) 

EXCEPT  REMEDIES,  CERTIORARI,  AND  CERTAIN  ADMINISTRATIVE 
PROVISIONS   CONTAINED   IN   PART   III. 


CHAPTER  I. 
INTRODUCTORY. 

The  Legislature  of  the  State  of  New  York  in  January,  1919, 
passed  a  concurrent  resolution  creating  a  Joint  Legislative  Com- 
mission consisting  of  three  assemblymen  and  three  senators  as- 
sisted by  experts  and  counsel,  upon  whom  devolved  the  duty  to 
investigate  the  general  subject  of  taxation  and  to  devise  means  to 
raise  taxes  that  would  take  the  place  of  the  revenue  that  would  be 
lost  through  the  adoption  of  the  Prohibition  Law. 

This  special  committee  headed  by  Senator  Frederick  M.  Daven- 
port and  Assemblyman  Franklin  W.  Judson,  after  holding  public 
hearings  in  various  parts  of  the  State  of  New  York  and  after  study- 
ing the  available  tax  propositions,  introduced  towards  the  end  of 
the  Legislative  session,  a  series  of  bills  intended  to  relieve  the  finan- 
cial straits  in  which  the  State  of  New  York  found  itself.  The 
first  of  these  bills,  which  became  Chapter  627  of  the  Laws  of  1919, 
introduced  an  entirely  new  scheme  of  taxation  into  the  state  sys- 
tem and  imposed  a  personal  income  tax  at  a  graded  rate  of  one, 
two  and  three  per  centum  on  individual  incomes  in  excess  of  $1,000 
for  single  persons  and  $2,000  for  married  persons.  The  rate  of 
one  per  centum  applied  to  all  persons  whose  income  was  $10,000  or 
less.  The  rate  of  two  per  centum  applied  to  such  part  of  the  per- 
sonal income  as  exceeded  $10,000  and  did  not  exceed  $50,000,  the 
rate  of  three  per  centum  attached  to  so  much  of  the  income  as 
exceeded  $50,000.  The  second  bill  which  was  enacted  and  is  known 
as  Chapter  628  of  the  Laws  of  1919,  was  an  amendment  to  the  tax 
law  in  relation  to  the  franchise  tax  on  business  corporations.  This 
class  of  corporations  had  already  been  taxed  under  Chapter  726  of 
the  Laws  of  1917  as  amended  by  the  Laws  of  1918.  The  new  act 
broadened  the  tax  so  that  it  applied  practically  to  all  business  cor- 

3 


4  :  *  CKWCPOfiAtlOKT   TAX    (ART.    9) 

porations  and  increased  the  rates  from  three  to  four  and  one-half 
per  centum  upon  the  net  income  of  such  corporations. 

The  work  of  the  Davenport  committee,  which  resulted  in  the 
passage  of  these  two  bills,  was  perhaps  a  corollary  or  a  sequel 
to  the  labors  of  the  Joint  Legislative  Committee  on  Taxation, 
sometimes  known  as  the  Mills  Committee,  appointed  by  the  New 
York  Legislature  in  1915,  to  examine  generally  the  subject  of 
taxation. 

Among  other  things,  the  Mills  Committee  devoted  its  atten- 
tion to 

"A.  An  investigation  of  the  personal  property  tax,  the  causes 
of  its  failure  and  possible  remedies  or  substitutes,  involving  a 
study  of  systems  tried  elsewhere; 

B.  The  reform  of  taxation  of  general  business  corporations, 
including  mercantile,  manufacturing  and  miscellaneous,  involv- 
ing a  study  of  the  principal  methods  of  taxing  general  business 
corporations  in  the  principal  states  of  the  Union."  (See  page  4 
of  report  of  Joint  Legislative  Committee  on  Taxation. ) 

The  Mills  Committee  made  its  report  to  the  Legislature  of 
1916  and  in  its  conclusions,  the  Committee  recommended,  among 
other  things,  as  a  result  of  its  investigations,  "1,  abolition  of  the 
present  tax  on  personal  property;  2,  the  withdrawal  of  general 
business  corporations  from  the  provisions  of  Section  182  of  the 
Tax  Law;  and  3,  the  imposition  of  an  income  tax  on  individuals 
and  general  business  corporations,  including  manufacturing  cor- 
porations." (See  page  207  of  the  Joint  Legislative  Committee's 
report.) 

In  the  year  this  report  was  made,  various  conferences  held  by 
other  bodies,  municipal  and  civic,  adopted  reports  proposing  a 
plan  basing  the  taxation  of  business  corporations  on  the  reports 
made  by  such  corporations  to  the  Federal  Government,  and  sug- 
gesting a  division  of  the  tax  between  the  State  and  localities. 

In  June,  1917,  the  law  now  known  as  Chapter  726  of  the  Laws 
of  1917,  which  carried  out  many  of  those  recommendations,  was 
approved  by  the  Governor. 

The  principal  feature  of  the  law  of  1917  was  a  franchise  tax  on 


INTRODUCTORY  5 

manufacturing  and  mercantile  corporations,  based  on  their  net 
income  as  reported  to  the  United  States  Treasury  Department, 
amounting  to  three  per  cent,  of  such  net  income.  If  the  corpora- 
tion's business  was  entirely  transacted  within  the  State,  the  tax 
would  be  equal  to  three  per  cent,  of  such  net  income.  If  only  a 
portion  of  the  company's  business  was  transacted  within  the  State, 
the  tax  wouli  be  in  proportion  to  the  tangible  property  within  and 
without  the  State.  The  tax  was  payable  in  advance,  and  based 
on  the  Federal  Income  Tax  for  the  preceding  fiscal  or  calendar 
year. 

Administrative  features  were  added  for  making  the  reports  of 
corporations,  for  the  computation  of  the  tax,  providing  for  failure 
to  report,  for  revision  and  re-hearing  of  a  tax  in  case  of  error  or 
illegality,  for  review  by  certiorari,  and  for  the  collection  of  a  tax 
by  the  State  in  case  of  neglect  or  failure  to  pay  the  same;  there 
was  also  provision  for  the  deposit  of  revenue  collected  by  the  State 
and  the  division  or  apportionment  between  the  State  and  the 
several  counties  of  the  State;  for  secrecy  by  officials,  and  penalties 
for  violation  thereof;  and  for  the  exemption  from  personal  prop- 
erty taxation,  and  from  the  State  Franchise  Tax  under  Section 
182  of  the  corporations  subject  to  tax  under  this  law. 

By  Chapters  271,  276,  292  and  417  of  the  Laws  of  1918,  va- 
rious amendments  were  made  to  Chapter  726  of  the  Laws  of  1917, 
which  are  more  fully  treated  hereafter.  The  Act  of  1917  is  in 
itself  designated  as  Article  9 -a.  It  specifically  excepts  certain 
classes  of  corporations  from  the  method  of  taxation  therein  pro- 
vided for.  (Chap.  417,  L.  1918.)  The  excepted  corporations 
are  still  subject  to  taxation  under  Article  9.  It  is  therefore  essen- 
tial to  review  the  general  system  of  franchise  taxation  under  Arti- 
cle 9,  in  order  to  grasp  the  bearing  of  the  new  law. 

Article  9  of  the  tax  law  up  to  the  time  of  the  enactment  of  the 
1917  law  imposing  a  franchise  tax  on  manufacturing  and  mer- 
cantile corporations  based  on  net  income,  contained  a  eomplete 
system  for  the  taxation  of  corporations  for  state  purposes.  It  also 
included  the  statutory  provisions  for  the  organization  and  license 
taxes  which  respectively  provide  for  the  amount  to  be  paid  by  a 


6  CORPORATION   TAX    (ART.   9) 

domestic  corporation  upon  receiving  its  charter  for  the  exercise  of 
its  franchise  in  the  state,  and  for  the  tax  to  be  paid  by  a  foreign 
corporation  as  a  license  fee  to  do  business  in  the  state.  By  Chapter 
726  of  the  laws  of  1917,  manufacturing  corporations  which  were 
theretofore  exempted  (section  183  of  the  tax  law,  Article  9)  from 
taxation  on  their  capital  stock,  and  the  greater  number  of  mer- 
cantile and  miscellaneous  corporations,  theretofore  taxable  on  their 
capital  stock  under  section  182  of  Article  9,  were  now  taxable  on 
net  income  under  Article  9-a.  These  mercantile  and  miscellaneous 
corporations  now  taxable  under  Article  9-a  were  hereafter  to  be 
exempted  from  taxation  under  Article  9. 

It  is  patent  then,  that  no  very  clear  idea  can  be  obtained  from 
the  new  provisions  of  the  tax  law  contained  in  Article  9-a  taxing 
general  business  corporations  (formerly  denominated  manufac- 
turing and  mercantile  corporations)  on  their  net  income  without 
considering  Article  9,  which  is  entitled  in  the  Consolidated  Laws 
"Corporation  Tax/' 

The  chapters  immediately  following  therefore  treat  of  Arti- 
cle 9  with  the  exception  of  that  portion  devoted  to  the  administra- 
tive procedure,  certiorari  and  collection.  This  procedure  is  in  the 
main  common  to  the  entire  system  of  state  taxation  and  is  treated 
in  Part  III  of  the  book. 


CHAPTER  II. 

THE  SYSTEM  OF  TAXING  STOCK  CORPORATIONS  FOR  STATE 

PURPOSES. 

The  present  system  of  taxing  corporations  for  state  purposes 
dates  from  the  year  1880.  Until  that  time  the  largest  part  of 
the  revenue  of  the  state  was  derived  from  a  direct  tax  on  land 
assessed  and  collected  by  the  various  counties  of  the  state. 

Annual  franchise  tax. — By  Chapter  542  of  the  Laws  of  1880 
a  general  scheme  of  state  taxation  of  stock  corporations,  except- 
ing certain  specified  corporations,  was  inaugurated.  A  tax  was 
imposed  by  this  law  on  all  stock  corporations,  resident  and  for- 
eign, excepting  savings  banks,  life  insurance  companies,  foreign 
insurance  companies  and  companies  carrying  on  manufacturing 
and  mining  within  the  state,  the  basis  of  computing  the  tax  in 
each  case  being  the  value  of  the  capital  stock. 

Organization  tax. — To  this  law,  in  1886  (Chapter  143),  was 
added  an  organization  tax,  to  be  paid  by  every  domestic  stock 
corporation,  with  the  exception  of  banking  and  building  loan 
associations  upon  the  organization  of  the  company,  the  basis  of 
computation  being  the  par  value  of  the  authorized  capital  stock. 

This  act  did  not  apply  to  literary,  scientific,  medical  and  re- 
ligious associations  or  corporations. 

License  tax. — By  Chapter  240  of  the  Laws  of  1895  a  tax  similar 
to  the  organization  tax,  and  known  as  a  license  tax,  was  required 
to  be  paid  by  every  foreign  corporation  upon  its  commencing  busi- 
ness within  the  state,  for  the  privilege  of  carrying  on  such  business, 
to  be  computed  on  the  basis  of  the  capital  stock  employed  within 
the  state. 

7 


8  CORPORATION   TAX    (ART.    9) 

Additional  franchise  tax  based  on  gross  earnings. — Chapter 
361  of  the  Laws  of  1881  provided  for  an  additional  annual  fran- 
chise tax  on  transportation  and  transmission  companies,  based  on 
gross  earnings  within  the  state.  This  tax  was  in  1896  also  im- 
posed on  elevated  and  surface  railroads  not  operated  by  steam ;  and 
on  water,  gas,  electric,  steam  heating,  light  and  power  companies 
at  a  higher  rate.  The  latter  companies  were,  however,  relieved 
from  the  payment  of  the  annual  franchise  tax  on  capital  stock. 

Franchise  tax  on  insurance  companies,  trust  companies, 
banks. — Chapter  361  of  the  Laws  of  1881  imposed  an  annual  fran- 
chise tax  on  insurance  companies,  based  on  gross  premiums  or 
earnings,  for  business  done  in  the  state.  Chapter  679  of  the  Laws 
of  1886  amended  the  Law  of  1881  by  reducing  the  amount  of  tax 
on  the  premiums  of  fire  and  marine  insurance  companies  and  ex- 
empting them  from  payment  of  the  tax  on  capital  stock. 

In  1901  the  annual  franchise  tax  was  also  extended  to  trust 
companies  and  savings  banks,  to  be  computed  on  the  basis  of  sur- 
plus and  undivided  profits. 

The  entire  system  of  state  taxation  on  stock  corporations  is  based 
on  the  theory  of  an  annual  tax  to  be  paid  by  each  stock  corpora- 
tion for  the  privilege  of  exercising  its  corporate  franchise  or  carry- 
ing on  its  business  in  the  st#te,  whether  the  corporation  be  foreign 
or  domestic,  and  whether  the  tax  be  computed  on  the  basis  of 
capital  stock  net  income  or  gross  earnings. 

In  1906  and  1907  the  method  of  computing  the  franchise  tax 
and  the  license  tax  under  sections  181  and  182  of  the  Tax  Law 
was  materially  changed.  While  the  basis  of  the  tax  remained 
capital  stock  employed  in  the  state,  the  value  of  the  capital  stock 
and  the  rate  of  the  tax  were  fixed  by  certain  arbitrary  rules.  Here- 
tofore, the  value  of  the  capital  stock  employed  within  the  state 
had  been  in  most  cases  determined  by  the  value  of  the  property 
itself.  People  ex  rel.  Commercial  Cable  Co.  v.  Morgan,  178  N".  Y. 
433  (1904).  The  method  of  ascertaining  the  amount  of  the  capital 
stock  employed  in  the  state  by  means  of  the  property  or  gross 
assets  in  the  state  is  now  incorporated  in  the  statute,  and  very  little 


STATE  SYSTEM  OF  CORPORATE  TAXATION  9 

is  left  to  the  discretion  of  the  taxing  authorities  in  making  an  as- 
sessment. 

Power  of  the  State  to  tax  corporations. — The  inherent  power 
of  the  state  to  tax,  apart  from  any  statutory  provisions  or  consti- 
tutional limitations,  is  necessarily  dependent  upon  whether  the 
person,  property  or  business  is  within  its  jurisdiction.  State  Tax 
on  Foreign  Held  Bonds,  15  Wall.  300  (319). 

In  the  case  of  a  domestic  corporation,  except  in  so  far  as  it  may 
be  restrained  by  the  constitution  of  the  United  States,  the  power 
of  the  state  to  tax  as  to  mode,  form  and  extent  is  unlimited. 
(Ibid.). 

In  respect  to  foreign  corporations  its  power  is  limited  by  the 
property  located,  or  business  done,  within  its  borders. 

The  State  of  New  York  has  proceeded  to  exercise  its  powers  to  tax 
corporations  for  state  purposes  by  levying  a  tax  on  their  franchises 
or  business.  While  this  is  the  general  scheme  of  corporate  taxa- 
tion for  state  purposes,  the  basis  on  which  the  tax  is  computed,  and 
the  rate  or  amount  of  the  tax,  differ  in  various  classes  of  corpora- 
tions. In  some  cases  the  basis  on  which  the  tax  is  computed,  de- 
pends upon  the  value  of  the  capital  stock  or  property  of  the  cor- 
poration. In  other  cases  it  depends  on  earning  power,  and  in  a 
third  class,  on  surplus  or  undivided  profits.  In  a  number  of  the 
classes  of  corporations  named  below,  a  combination  of  these 
methods  of  computation  is  used  in  estimating  the  tax  or  taxes  to 
be  paid. 

Corporations  subject  to  franchise  tax  and  basis  thereof. — 

The  following  classification  will  show  the  various  taxes  paid  by 
corporations  to  the  state  for  the  privilege  of  exercising  their 
corporate  franchises  or  business  in  the  state. 

1.  Domestic   corporations,  paying  an  incorporation  or  organ- 
ization tax  based  on  the  amount  of  the  authorized  capital  stock. 

2.  Foreign  corporations,  paying  a  license  fee  or  business  tax 
based  on  the  amount  of  the  capital  stock  used  within  the  state 
represented  by  property  in  the  state. 


10 


CORPORATION   TAX    (ART.    9) 


3.  Domestic  and  foreign  corporations,  taxable  under  Article 
paying  an  annual  tax  based  on  the  value  of  capital  stock  employe 
within  the  state. 

4.  Domestic  and  foreign  business  corporations,  taxable  undei 
Article  9 -a,  with  the  exception  of  the  corporations  named  in  th( 
other  classifications,  paying  an  annual  franchise  tax  based  on  nel 
income  returned  to  the  United  States  Treasury  Department. 

And  the  following  special  classes  of  corporations : 

5.  Transportation,  heating,  power,  lighting,  water  and  tra] 
mission  companies,  paying  an  annual  tax  based  on  gross  earnings. 

6.  Elevated  and  surface  railroads  not  operated  by  steam,  paying 
an  annual  tax  based  on  gross  earnings. 

7.  Insurance  companies,  paying  an  annual  tax  based  on  grot 
premiums  or  earnings. 

8.  Trust  companies,  paying  an  annual  tax  based  on  capital 
stock,  surplus  and  undivided  profits. 

9.  Investment  companies,  paying  an  annual  tax  based  on  face 
value  of  capital  stock,  surplus  and  undivided  profits. 

10.  Savings  banks,  paying  an  annual  tax  based  on  surplus  and 
undivided  earnings. 

11.  Foreign  bankers,  which  class  includes  corporations,  paying 
an  annual  tax  on  net  earnings  or  interest  earned. 


CHAPTER  III. 

THE  ORGANIZATION   TAX  TO  BE  PAID  BY  DOMESTIC   CORPORA- 
TIONS. 

Defined. — The  organization  or  incorporation  tax  is  the  charge 
to  be  paid  by  every  domestic  stock  corporation  except  banking, 
building,  mutual  loan,  accumulating  fund  and  co-operative  asso- 
ciations, and  is  paid  for  the  privilege  of  receiving  its  charter  or 
exercising  its  corporate  franchise  in  the  state. 

The  basis  of  the  tax. — The  basis  of  the  tax  is  the  authorized 
capital  stock.  In  this  respect,  it  differs  from  the  license  tax  or 
initial  tax  paid  by  a  foreign  corporation  for  the  privilege  of  com- 
ing into  the  state  to  do  business,  which  is  based  on  that  part  of  its 
issued  capital  stock  represented  by  the  proportion  which  the  prop- 
erty or  assets  in  the  state  bear  to  its  entire  property  or  assets. 

Rate  of  tax. — The  rate  or  amount  of  the  tax  is  one-twentieth 
of  one  per  cent,  on  the  authorized  amount  of  capital  stock,  but  in 
no  case  shall  this  tax  be  less  than  ten  dollars.  Prior  to  1901,  the 
rate  for  the  organization  tax  was  the  same  as  for  the  license  tax 
to  be  paid  by  a  foreign  corporation  on  coming  into  the  state  to  do 
business,  viz.,  one-eighth  of  one  per  cent.  The  Comptroller's  Re- 
port of  1900  recommended  a  reduction  of  the  organization  tax,  and 
by  Chapter  448,  Laws  of  1901,  it  was  reduced  to  one-twentieth  of 
one  per  cent.,  the  present  rate. 

In  many  states  the  rate  paid  by  domestic  and  foreign  corpora- 
tions is  the  same,  but  there  is  no  unconstitutionally  in  imposing 
a  different  rate  on  foreign  corporations  coming  into  the  state. 
Horn  Silver  Minting  Co.  v.  N.  Y.f  143  U.  S.  305. 

When  the  organization  tax  is  payable,  how  paid,  and  to 
whom. — The  organization  tax  is  payable  at  the  time  the  certifi- 

11 


12  CORPORATION   TAX    (ART.    9) 

cate  of  incorporation  is  filed  with  the  secretary  of  state.  A  check 
for  the  amount  of  the  tax  should  be  sent  to  the  state  treasurer,  and 
the  receipt  for  the  same  should  be  annexed  to  the  certified  copy 
certificate  of  incorporation  or  duplicate  of  original  when  filed  in 
the  office  of  the  clerk  of  the  county  in  which  the  principal  office 
is  situated. 

The  present  statute  reads  as  follows: 

Organization  tax. — Every  stock  corporation  incorporated  under 
any  law  of  this  state  shall  pay  to  the  state  treasurer  a  tax  of  one- 
twentieth  of  one  per  centum  upon  the  amount  of  capital  stock  which 
the  corporation  is  authorized  to  have  and  a  like  tax  upon  any  sub- 
sequent increase.  Provided,  that  in  no  case  shall  such  tax  be  less 
than  ten  dollars.  Such  tax  shall  be  due  and  payable  upon  the  in- 
corporation of  such  corporation  or  upon  the  increase  of  its  capital 
stock.  Except  in  the  case  of  a  railroad  corporation,  neither  the  sec- 
retary of  state  nor  county  clerk  shall  file  any  certificate  of  incor- 
poration or  article  of  association,  or  give  any  certificate  to  any  such 
corporation  or  association  until  he  is  furnished  a  receipt  for  such 
tax  from  the  state  treasurer,  and  no  stock  corporation  shall  have  or 
exercise  any  corporate  franchise  or  powers,  or  carry  on  business  in  this 
state  until  such  tax  shall  have  been  paid.  And  in  case  of  a  de- 
crease of  capital  stock,  upon  which  the  tax  required  by  law  has  been 
paid,  and  a  subsequent  increase  thereof,  a  tax  shall  be  paid  only 
upon  so  much  of  such  increase  as  exceeds  the  amount  of  capital 
stock  upon  which  a  tax  has  been  before  paid.  In  case  of  the  con- 
solidation of  existing  corporations  into  a  corporation,  such  new 
corporation  shall  be  required  to  pay  the  tax  hereinbefore  provided 
for  only  upon  the  amount  of  its  capital  stock  in  excess  of  the  ag- 
gregate amount  of  capital  stock  of  said  corporations.  This  section 
shall  not  apply  to  state  and  national  banks  or  to  building,  mu- 
tual loan,  accumulating  fund  and  co-operative  associations.  A  rail- 
road corporation  need  not  pay  such  tax  at  the  time  of  filing  its  certifi- 
cate of  incorporation,  but  shall  pay  the  same  before  the  public  service 
commission  shall  grant  a  certificate,  as  required  by  the  railroad  law, 
authorizing  the  construction  of  the  road  as  proposed  in  its  articles  of 
association,  and  such  certificate  shall  not  be  granted  by  the  public 
service  commission  until  it  is  furnished  with  a  receipt  for  such  tax 
from  the  state  treasurer.  If  the  board  of  railroad  commissioners  or 
public  service  commission  shall  have  heretofore  granted,  or  the  public 
service  commission  shall  hereafter  grant,  such  certificate  and  upon 
an  appeal  from  the  determination  of  such  board  of  railroad  commis- 


THE   ORGANIZATION   TAX  13 

sioners  or  public  service  commission,  such  certificate  has  been  or  may 
hereafter  be  denied  the  state  treasurer  shall  refund  the  amount  of  tax 
so  paid  to  the  railroad  corporation  or  corporations  by  which  such 
tax  was  paid,  upon  proof  of  payment  being  presented  and  appropria- 
tion being  made  therefor.  (Sec.  180,  former  sec.  180,  Taoo  Law,  as 
amended  by  ch.  369,  L.  1897,  ch.  448,  L.  1901,  oh.  524,  L.  1906,  ch. 
472,  L.  1910,  ch.  91,  L.  1911,  ch.  317,  L.  1915,  and  ch.  493,  L.  1917.) 

Source:  Ch.  143,  L.  1886,  as  amended  by  ch.  668,  L.  1892. 

Tax  on  re-organization  of  corporations. — No  organization  tax 
is  due  on  the  re-organization  of  a  manufacturing  corporation  under 
the  Business  Corporation  Law.  Matter  of  Consol.  Kansas  City 
Smelting  Co.,  13  App.  Div.  50  (1897).  But  where  railroad  cor- 
poration property  and  franchises  have  been  foreclosed  and  sold, 
and  a  new  corporation  formed  under  a  re-organization  act  (Chap- 
ter 430,  of  Laws  of  1874,  as  amended),  an  organization  tax  is 
payable.  People  ex  rel.  Sctiurz  v.  Cook;  same  v.  Mertens,  110 
N".  Y.  443.  The  law  imposing  this  tax  does  not  impair  the  obli- 
gation of  contracts.  Ibid. 

Consolidated  corporations. — Before  the  amendment  of  1892 
(Chapter  668,  Laws  of  1892),  consolidated  corporations  were  re- 
quired to  pay  the  organization  tax.  After  this  amendment  no  tax 
was  required  from  a  consolidated  corporation  except  upon  the 
excess  stock. 

Organization  tax  payable  by  corporations  with  shares  without 
designated  monetary  value. — The  organization  tax  payable  under 
section  one  hundred  and  eighty  of  the  tax  law  by  any  corporation  issu- 
ing such  shares  without  designated  monetary  value  shall  be  at  the  rate 
of  five  cents  on  each  such  share  which  the  corporation  is  authorized  to 
issue,  and  a  like  tax  upon  any  subsequent  increase  thereof.  (Chap. 
351,  L.  1912.) 

Note:  The  amendment  of  1917  to  Section  180  making  the  organiza- 
tion tax  in  each  case  not  less  than  $10.00,  applies  also  to  corporations 
having  shares  without  designated  par  value.  (Rept.  of  Atty.  General 
[1912],  291.) 


CHAPTER  IV. 
LICENSE  TAX;  FOREIGN  CORPORATIONS. 

License  tax  defined. — The  license  tax  is  the  fee  or  tax  pai< 
by  a  foreign  corporation  for  the  privilege  of  exercising  its  cor- 
porate franchise,  or  for  carrying  on  its  business,  in  its  corporate 
or  organized  capacity  within  the  state. 


History. — This  tax  corresponds  very  closely  to  the  organiza- 
tion tax  to  be  paid  by  domestic  corporations  for  the  privilege 
of  receiving  its  charter,  or  exercising  its  corporate  franchise  in 
the  state.  The  organization  tax,  or  tax  on  incorporation  of  do- 
mestic corporations,  has  existed  in  this  state  since  1886,  but  it 
was  not  until  1895  that  a  foreign  corporation  was  required  to 
pay  any  fee  or  tax  for  the  privilege  of  exercising  its  corporate  fran- 
chise in  the  state.  The  Comptroller  of  the  state,  in  his  report  for 
the  year  1895,  in  order  to  bring  within  the  jurisdiction  of  the 
state  certain  corporations  organized  under  the  laws  of  other  states, 
but  practically  domestic,  as  far  as  their  business  was  concerned, 
recommended  that  foreign  corporations  be  taxed  on  the  basis  of 
the  capital  stock  employed  in  the  state.  By  Chapter  240  of  the 
Laws  of  1895,  a  foreign  corporation  was  required  to  pay  a  license 
fee  or  a  tax  of  one-eighth  of  one  per  centum  "for  the  privilege  of 
exercising  its  corporate  franchise  or  carrying  on  its  business  in 
such  corporate  or  organized  capacity  in  the  state  .  .  .  computed 
upon  the  basis  of  the  amount  of  its  capital  stock  employed  within 
the  state"  during  the  first  year.  This  has  practically  remained 
the  law  to  this  date.  The  amendment  of  1901  included  manufac- 
turing corporations,  and  the  amendment  of  1906  changed  the 
method  of  computing  the  amount  of  capital  stock  employed  within 
the  state. 

14 


LICENSE   TAX  15 

The  present  law  reads  as  follows: 

License  tax  on  foreign  corporations. — Every  foreign  corpora- 
tion, except  banking  corporations,  fire,  marine,  casualty  and  life 
insurance  companies,  co-operative  fraternal  insurance  companies,  and 
building  and  loan  associations,  doing  business  in  this  state,  shall  pay 
to  the  state  treasurer,  for  the  use  of  the  state,  a  license  fee  of  one- 
eighth  of  one  per  centum  for  the  privilege  of  exercising  its  corpo- 
rate franchises  or  carrying  on  its  business  in  such  corporate  or  organ- 
ized capacity  in  this  state,  to  be  computed  upon  the  basis  of  the 
capital  stock  employed  by  it  within  this  state,  during  the  first  year 
of  carrying  on  its  business  in  this  state,  which  first  payment  shall 
not  be  less  than  ten  dollars;  and  if  any  year  thereafter  any  such  cor- 
poration shall  employ  more  than  eight  thousand  dollars  of  its  capital 
stock  within  this  state  on  which  a  license  fee  has  not  been  paid 
then  a  license  fee  at  the  rate  of  one-eighth  of  one  per  centum  shall  be 
due  and  payable  upon  any  such  increase.  The  measure  of  the  amount 
of  capital  stock  employed  in  this  state  shall  be  such  a  portion  of  the 
issued  capital  stock  as  the  gross  assets  employed  in  any  business 
within  this  state  bear  to  the  gross  assets  wherever  employed  in  busi- 
ness. For  purposes  of  taxation,  the  capital  of  a  corporation  invested 
in  the  stock  of  another  corporation  shall  be  deemed  to  be  assets  located 
where  the  physical  property  represented  by  such  stock  is  located.  The 
amount  of  capital  upon  which  such  license  fees  shall  be  paid  shall  be 
fixed  by  the  state  tax  commission,  which  shall  have  the  same  authority 
to  examine  the  books  and  records  in  this  state  of  such  foreign  corpo- 
rations, and  the  employees  thereof,  as  it  has  in  the  case  of  domestic  cor- 
porations, and  the  comptroller  shall  have  the  same  power  to  issue  his 
warrant  for  the  collection  of  such  license  fees  as  he  now  has  with 
regard  to  domestic  corporations.  No  action  shall  be  maintained  or 
recovery  had  in  any  of  the  courts  in  this  state  by  such  foreign  corpo- 
ration after  thirteen  months  from  the  time  of  beginning  such  business 
within  the  state,  without  obtaining  a  receipt  from  the  comptroller 
for  the  payment  of  the  license  fee  upon  the  capital  stock  employed 
by  it  within  this  state  during  the  first  year  of  carrying  on  its  business 
in  this  state.  (Former  sec.  181,  Tax  Law,  as  amended  by  L.  1910, 
ch.  340,  L.  1915,  ch.  317,  L.  1917,  oh.  490.) 

Source:  Ch.  240,  L.  1895,  without  change  of  substance. 

Recent  Amendments. — The  amendment  of  1915  gave  the  assessing 
power  to  the  state  tax  commission  instead  of  the  comptroller,  but 
gave  the  state  comptroller  the  power  to  collect  the  tax.  The  1917 
amendments  fixed  the  minimum  tax  at  $10.00  and  gave  the  tax  de- 


16  CORPORATION    TAX    (ART.    9) 

partment  the  power  to  levy  a  license  tax  on  foreign  corporations,  ir- 
respective of  whether  they  had  complied  with  the  provisions  of  the 
General  Corporation  Law,  or  not.  There  was  some  question  as  to 
whether  the  tax  department  had  such  power. 

When  the  license  tax  should  be  paid. — The  tax  should  be 
paid  at  any  time  between  the  twelfth  and  thirteenth  month  after 
the  corporation  has  commenced  to  do  business  in  the  state.  People 
ex  rel.  Dutilh-Smith  Co.  v.  Miller,  90  App.  Div.  545  (1904). 

Change  in  computing  amount  of  capital  stock. — While  the 
basis  of  the  tax  remains  the  same  as  in  the  past,  viz.,  "Capital 
stock  employed  within  the  state/'  the  method  of  computing  the 
tax,  as  in  the  case  of  a  domestic  corporation,  has  been  materially 
changed  by  the  amendment  of  1906.  (Ch.  474.)  Formerly  it 
was  the  amount  of  capital  employed  within  the  state,  regardless 
of  the  share  stock.  People  ex  rel.  Consolidated  Ginseng  Co.  v. 
Kelsey,  182  N.  Y.  526;  affirming  105  App.  Div.  175  (1905); 
People  ex  rel.  National  Enameling  Co.  v.  Miller,  112  App.  Div. 
880  (1906).  Now,  it  approximates  very  closely  to  the  organiza- 
tion tax  paid  by  the  domestic  corporation  upon  its  incorporation, 
except  that  the  tax  is  computed  on  the  issued  share  stock  and  not  on 
the  authorized  stock,  as  in  the  organization  tax  paid  by  domestic 
corporations.  The  use  of  the  words  "issued  capital  stock"  in  the 
amendment  of  1906  clearly  shows  that  the  par  value  of  the  issued 
stock  was  to  be  the  basis  of  taxation  rather  than  the  appraised 
value.  People  ex  rel.  Elliott-Fisher  Co.  v.  Solimer,  148  App.  Div. 
514  (1911).  Affirmed  206  N.  Y.  634. 

The  purpose  of  the  legislature  in  passing  the  law  authorizing 
the  payment  of  a  license  tax  by  foreign  corporations  (Sec.  181) 
as  evidenced  by  the  recommendation  of  the  Comptroller  in  his  re- 
port for  the  year  1895,  was  to  impose  upon  foreign  corporations 
a  tax  similar  to  the  organization  tax  imposed  upon  domestic  cor- 
porations, and  thus  do  away  with  any  favor  that  the  former  may 
have  enjoyed.  Despite  this  fact  the  courts  felt  obligated  to  fol- 
low former  decisions  and  to  declare  that  the  tax  was  not  to  be 
computed  upon  the  par  value  of  the  stock  of  the  foreign  corpora- 


LICENSE  TAX  17 

tion,   but  rather  upon  the  amount  of  capital   employed  in  the 
state.     (See  Ginseng  case  supra.) 

The  decision  in  this  case  caused  the  Comptroller  to  ask  for  an 
amendment  to  Section  181,  and  in  1906  there  was  added  to  the 
section  the  words :  "The  measure  of  the  amount  of  capital  stock 
employed  .  .  ."  etc.  So  the  tax  is  now  computed  on  par  value. 
Elliott-Fisher  Co.  v.  Sohmer,  supra. 

Foreign  corporations  not  citizens. — Foreign  corporations  are 
not  citizens  within  the  meaning  of  the  fourteenth  amendment  to 
the  United  States  Constitution,  guaranteeing  equal  privileges  to 
citizens  of  other  states.  Nor  are  they  citizens  within  the  meaning 
of  section  2,  article  4,  of  the  United  States  Constitution,  entitling 
citizens  of  each  state  to  all  privileges  and  immunities  of  citizens 
of  the  several  states,  and  the  right  of  a  state  to  exclude  foreign 
corporations  is  well  settled.  A  state  may  impose  on  a  foreign  cor- 
poration a  tax  for  the  privilege  of  doing  business  in  the  state 
measured  by  the  amount  of  capital  employed  in  such  business 
within  this  state.  People  ex  rel.  P&rke,  Davis  &  Co.  v.  Roberts, 
91  Hun,  158  (1895) ;  aff'd  149  N.  Y.  608,  171  U.  S.  658. 

The  United  States  Supreme  Court  has  held  that  a  license  tax 
imposed  on  a  drummer  or  sales  agent  was  unconstitutional.  Car- 
son v.  Maryland,  120  U.  S.  502  (1887) ;  Bobbins  v.  Shelby  County 
Taxing  District.  Id.  489,  but  there  is  a  distinction  between  a  li- 
cense tax  on  a  sales  agent  or  drummer  sent  here  to  make  sales 
and  a  tax  on  a  corporation  bringing  property  into  the  state  and 
carrying  on  business.  People  ex  rel.  Southern  Cotton  Oil  Co. 
v.  Wemple,  61  Hun,  83  (1891) ;  affd  131  N.  Y.  64. 

When  foreign  corporations  carry  on  business  or  employ 
capital  in  the  state. — In  order  that  corporations  shall  be  liable 
to  pay  the  license  tax  under  section  181  of  the  Tax  Law  they 
must  (1)  carry  on  business  in  the  state,  and  (2)  employ  capital 
in  such  business.  These  are  also  conditions  precedent  before  for- 
eign corporations  are  liable  to  taxation  for  the  annual  franchise 
tax  under  section  182  of  the  Tax  Law,  and  are  discussed  under  that 
head. 


CORPORATION   TAX    (ART.    9) 

Foreign  corporations  to  file  certificate  before  doing  busi- 
ness.— Section  15  of  the  General  Corporation  Law  requires  every 
foreign  stock  corporation,  with  the  exception  of  moneyed  cor- 
porations, to  file  a  certificate  with  the  secretary  of  state,  giving 
certain  information  as  to  business,  capital  and  officers,  before  it 
can  do  business  in  the  state.  Failing  to  do  this  it  subjects  itself 
to  certain  disabilities,  such  as  being  unable  to  maintain  an  action 
in  the  courts  of  the  state  upon  any  contract  made  by  it  in  the 
state. 

If  it  files  such  certificate,  however,  it  may  be  considered  as  prima 
facie  evidence  that  it  is  doing  business  in  the  state,  as  has  been  held 
in  the  case  of  corporations  assessed  for  local  purposes.  People  ex 
rel  Armstrong  Cork  Co.  v.  Commrs,  157  X.  Y.  159  (1898).  The 
failure  to  file  the  certificate  does  not,  on  the  other  hand,  imply  that 
the  corporation  is  not  engaged  in  business  in  the  state. 

Failure  to  pay  license  tax  bar  to  action. — The  last  paragraph 
of  section  181  requires  every  foreign  corporation  to  pay  the  li- 
cense fee  or  tax  within  thirteen  months  after  beginning  to  do 
business  in  the  state.  No  action  can  be  maintained  in  any  court 
of  the  state  after  this  time,  if  the  fee  has  not  been  paid.  The 
provisions  of  this  section  should  not  be  confused  with  section 
15  of  the  General  Corporation  Law  (above  referred  to)  requiring 
every  foreign  corporation  doing  business  in  the  state  to  file  a 
certificate  with  the  secretary  of  state  before  it  can  maintain  an 
action  upon  any  contract  made  by  it  in  the  state.  A  corporation 
may  undoubtedly  be  engaged  in  business  in  the  state  without  having 
capital  employed  in  such  business,  and  while  the  doing  of  busi- 
ness in  the  state  would  subject  it  to  the  provisions  of  section  15 
of  the  General  Corporation  Law,  it  need  not  pay  the  license  fee 
under  section  181  of  the  Tax  Law  required  of  a  corporation  en- 
gaged in  business  and  employing  its  stock  in  the  state.  A  num- 
ber of  the  decisions  hold  that  a  complaint  by  a  foreign  corpora- 
tion, which  alleges  that  it  is  doing  business  in  the  state  must  also 
affirmatively  show  that  it  has  filed  a  certificate  under  section  15 
of  the  Corporation  Law.  Welsbach  v.  Norwich  Gas.  Co.,  96  App. 


LICENSE   TAX  19 

Div.  52,  affirmed  without  opinion,  180  N".  Y.  533;  Wilson  McNeill 
Co.  v.  Standard  Oil  Co.,  110  App.  Div.  888;  Wood  &  Sellick  Co. 
v.  Ball,  114  App.  Div.  744  (1906);  affd  190  N.  Y.  219.  The 
general  requirements  of  section  15  of  the  General  Corporation 
Law  have  been  confounded  with  the  provisions  of  section  181  of 
the  Tax  Law.  This  would  seem  to  be  so  from  the  case  of  Reedy 
Elevator  Co.  v.  American  Grocery  Co.,  24  Misc.  678  (Appellate 
Term),  holding  that  compliance  with  section  181  is  a  jurisdictional 
fact  and  must  be  set  forth  in  an  application  for  attachment.  In 
Kinney  v.  Reid  Ice  Cream  Co.,  57  App.  Div.  208,  it  was  held  that 
if  it  be  shown  in  the  pleadings  that  the  foreign  corporation  has 
been  engaged  in  business  for  more  than  a  year,  having  capital  em- 
ployed in  such  business,  and  has  not  paid  the  license  tax  under 
section  181  of  the  Tax  Law,  a  demurrer  to  the  pleadings  will  lie, 
and  that  the  assignee  of  the  foreign  corporation,  defaulting  in 
this  respect,  is  in  no  better  position  than  the  corporation  itself. 
The  court  said  in  this  case:  "We  see  no  reason  why  the  rule  ap- 
plied in  the  cases  cited  in  reference  to  section  15  of  the  General 
Corporation  Law  should  not  apply  to  section  181  of  Chapter  908  of 
the  Laws  of  1896."  This  case  was  followed  by  Halsey  v.  Jewett 
Dramatic  Co.,  114  App.  Div.  420  (1906).  The  dissenting  opinion 
in  the  last  named  case,  by  Judge  Houghton,  is  valuable,  in  that 
it  points  out  the  distinction  in  the  objects  of  section  15  of  the 
General  Corporation  Law  and  section  181  of  the  Tax  Law.  While  it 
would  be  necessary  affirmatively  to  allege  the  filing  of  the  certifi- 
cate under  the  former  section,  it  is  not  necessary  to  allege  the 
payment  of  the  tax  under  section  181  of  the  Tax  Law,  as  a  part 
of  the  pleading. 

In  the  case  of  Wood  &  Sellick  v.  Ball  which  was  affirmed  in 
190  N.  Y.  217-218,  the  court  points  out  the  distinction  between 
the  Welsbach  case  and  Parmele  v.  Haas,  171  N.  Y.  579.  In  the 
Parmele  case  the  payment  of  the  license  fee  was  a  condition  subse- 
quent. The  corporation  was  permitted  to  carry  on  business  in 
the  state  and  after  carrying  on  business  for  a  certain  length  of 
time,  must  then  pay  the  license  tax.  There  was  no  express  prohi- 
bition against  doing  business  without  paying  the  license  tax,  but 


20  CORPORATION   TAX    (ART.    9) 

a  penalty  was  imposed  through  withholding  the  right  to  sue  unless 
the  license  fee  was  paid  within  the  statutory  period.  It  was,  there- 
fore, held  that  it  was  not  absolutely  necessary  to  allege  compliance 
with  the  section  of  the  Tax  Law  before  commencing  an  action. 
This  is  in  accordance  with  the  general  rule  that  performance  of  a 
condition  subsequent  which  continues  in  force  a  right  already  ac- 
quired, need  not  be  pleaded,  while  performance  of  a  condition 
precedent  by  which  the  right  itself  is  acquired  in  the  first  instance 
must  be  pleaded.  On  the  other  hand,  section  15  of  the  Corporation 
Law  which  led  to  the  result  in  the  Welsbach  case,  is  a  condition 
precedent  to  the  right  of  a  foreign  stock  corporation  to  do  business. 
It  was,  therefore,  held  in  Wood  &  Sellick  v.  Ball,  that  compliance 
with  section  15  of  the  General  Corporation  Law  should  be  alleged 
and  proved  by  a  foreign  corporation  in  order  to  establish  a  cause 
of  action  in  the  courts  of  this  state. 

Whatever  the  rule  may  be  as  to  section  15  of  the  General  Cor- 
poration Law,  it  would  seem  to  be  well  settled  by  the  case  of 
Parmele  v.  Haas,  and  of  Wood  v.  Ball,  supra,  that  it  is  unneces- 
sary affirmatively  to  plead  compliance  with  section  181  of  the  Tax 
Law;  that  the  matter  covered  by  this  section  is  no  part  of  an 
affirmative  case  and  that  the  corporation  will  be  presumed  to  have 
complied  with  the  section  unless  the  contrary  is  shown.  The 
Welsbach  case,  supra,  does  not  seem  to  affect  the  decision  in  Par- 
mele v.  Haas,  since  the  complaint  in  the  former  case  showed  upon 
its  face  that  the  plaintiff  company  was  engaged  in  business  within 
the  state.  Consequently,  the  presumption  that  it  has  complied 
with  the  law  did  not  arise. 

In  Emmerich  v.  Sloane,  108  App.  Div.  330  (1905),  the  court 
distinguished  section  15  of  the  General  Corporation  Law  from 
section  181  of  the  Tax  Law,  saying  that  the  requirements  of  the 
latter  law  were  not  to  be  strictly  construed,  since  they  were  mere 
revenue  regulations  for  the  benefit  of  the  state,  which  the  latter 
had  the  right  to  waive;  that  if  the  tax  under  section  181  were 
paid  before  the  commencement  of  the  action,  the  certificate  might 
be  obtained  thereafter. 


LICENSE   TAX  1 

Correspondence  school  corporation  engaged  in  interstate 
business. — A  foreign  corporation  engaged  in  the  business  of  a 
correspondence  school,  soliciting  business  within  the  state  through 
agents,  but  having  no  office  here,  the  contracts  being  closed  at  the 
home  office  outside  of  the  state,  and  the  instruction  being  given 
from  that  office  by  mail,  through  text  book  and  letter,  is  engaged 
in  interstate  commerce  and  may  bring  an  action  without  paying 
the  license  tax  under  Section  181.  People  ex  rel.  International 
Text  Book  Co.  v.  Tone,  220  N.  Y.  313  (1917) ;  reversing  162 
App.  Div.  930. 

Foreign  corporation,  shipping  goods  into  the  state,  not  do- 
ing business,  and  may  commence  action. — A  foreign  corpora- 
tion shipping  goods  into  the  state  on  orders  addressed  to  the  home 
office,  is  not  doing  business  within  the  state,  and  therefore  not 
subject  to  the  above  limitations  as  to  commencement  of  action. 
Harvard  Co.  v.  Wicht,  99  App.  Div.  507  (1905);  Novelty  Manu- 
facturing Co.  v.  Connell,  88  Hun,  254  (1895).  Nor  does  this  tax 
apply  to  a  foreign  corporation,  which  sold  no  goods  here  but  re- 
ceived from  its  agents  abroad  reports  of  orders,  which  these 
agents  transmitted  for  execution  to  another  corporation  outside 
of  the  state.  People  ex  rel.  Dutilh-Smifh  Co.  v.  Miller,  90  App. 
Div.  545  (1904). 

Not  applicable  to  foreign  corporations  in  business  less  than 
thirteen  months. — A  foreign  corporation  not  having  employed 
its  capital  in  the  state  for  a  period  of  thirteen  months  may  sue 
out  a  writ  of  attachment  without  first  obtaining  the  receipt  re- 
quired by  section  181,  Tax  Law.  Reedy  Elevator  Co.  v.  American 
Grocery  Co.,  82  N.  Y.  St.  Eep.  619.  The  provisions  of  the  Tax 
Law  of  1896,  that  the  tax  must  be  paid  within  thirty  days  after 
December  1,  1901,  by  a  foreign  corporation  engaged  in  business 
for  more  than  thirteen  months  previous  to  that  date  does  not  bar 
the  corporation  from  maintaining  an  action,  if  the  tax  has  been 
paid  prior  to  the  commencement  of  the  action.  Dunbarton  Flax 
Spinning  Co.  v.  G.  &  J.  R.  Co.,  87  App.  Div.  21  (1903).  The 
amendment  of  1910  makes  this  point  clear,  because  the  action  may 


IPORATION 


be  commenced  after  thirteen  months  from  the  time  the  corpora- 
tion has  begun  business  in  the  state,  provided  the  tax  has  been 
paid. 


Corporation  not  within  jurisdiction  until  license  fee  paid. 

— While  corporations  are  not  "citizens/'  they  have  been  deemed 
"persons"  within  the  meaning  of  the  14th  amendment,  by  which 
no  state  shall  "deprive  any  person  of  life,  liberty  or  property  with- 
out due  process  of  law,  nor  deny  to  any  person  within  its  juris- 
diction the  equal  protection  of  the  law;"  but  a  foreign  corpora- 
tion that  has  not  paid  its  state  license  fee,  was  held  to  be  not 
within  the  "jurisdiction,"  although  a  "person,"  until  it  complied 
with  the  prerequisite.  Phila.  Fire  Ins.  Co.  v.  N.  Y.,  119  U.  S. 
110  (1886).  Nor  is  there  any  doubt  about  the  right  of  the  state 
to  impose  a  tax  on  a  foreign  corporation  for  the  privilege  of  do- 
ing business  in  the  state.  Ducat  v.  Chicago,  10  Wall.  410,  except 
that  the  power  of  the  state  to  exclude  a  foreign  corporation  should 
be  subject  to  the  limitation  that  freedom  of  interstate  commerce 
is  not  to  be  impaired.  International  Text  Book  Co.  v.  Tone,  supra, 
citing  Western  Union  Tel  Co.  v.  Kansas,  216  U.  S.  27. 

Measure  of  the  amount  of  capital  stock  employed  in  the 
state. — This  subject  applies  to  the  annual  tax  as  well  as  to  the 
license  tax  and  is,  therefore,  treated  under  that  head  in  the  next 
chapter. 


CHAPTER  V. 
ANNUAL  FRANCHISE  TAX  ON  CAPITAL  STOCK. 

Besides  paying  a  tax  upon  its  organization,  or  when  it  begins 
to  do  business  in  the  state,  an  annual  franchise  tax  "for  the 
privilege  of  doing  business  or  exercising  its  corporate  franchise 
in  this  state"  must  be  paid  every  year,  under  section  182  Tax  Law, 
by  each  of  the  following  classes  of  corporations  doing  business  in 
the  state: 

Corporations  subject  to  capital  stock  tax  under  section 
182. — 

1.  Corporations  only  engaged  in  the  purchase,  sale  and  holding 
of  real  estate  for  themselves. 

2.  Holding  corporations  whose  principal  income  is  derived  from 
holding  the  stocks  and  bonds  of  other  corporations. 

3.  Steam  surface  railroad  corporations; 

4.  Canal  corporations; 

5.  Steamboat  corporations; 

6.  Ferry  corporations; 

7.  Express  corporations; 

8.  Navigation  corporations; 

9.  Pipe  line  corporations;  - 

10.  Transfer  and  baggage  corporations; 

11.  Telephone  and  telegraph  corporations; 

12.  Palace  car  and  sleeping  car  corporations. 

Corporations  exempt  from  capital  stock  tax  under  section 
182. — The  following  corporations  are  excepted  from  the  provisions 
of  the  annual  franchise  tax,  payable  under  section  182 : 

1.  Manufacturing,  mercantile,  laundering,  mining  and  mis- 
cellaneous corporations  now  classed  as  "business  corporations"  and 

23 


24 


CORPORATION   TAX    (ART.    9) 


paying  a  franchise  tax  on  the  amount  of  net  income  returned  to  the 
United  States  Treasury  Department  under  section  209,  Article 
9-a  of  the  Tax  Law. 

2.  Banks,  savings  banks,  and  institutions  for  savings. 

3.  Title  guaranty  companies; 

4.  Insurance  companies; 

5.  Surety  companies; 

6.  Trust  companies. 

7.  Elevated  and  surface  railroads,  liable  under  section  185, 
Law. 

8.  Water,  lighting  and  power  companies  liable  under  section 
186,  Tax  Law. 

9.  Agricultural  and  horticultural  associations  and  corporations. 

The  present  provisions  of  the  statute  read  as  follows : 

Certain  corporations  exempt  from  tax  on  capital  stock. — Banks, 
savings  banks,  institutions  for  savings,  title  guaranty,  insurance  or 
surety  corporations,  every  trust  company  incorporated,  organized  or 
formed,  under,  by  or  pursuant  to  a  law  of  this  state,  and  any  company 
'authorized  to  do  a  trust  company  business,  solely  or  in  connection  with 
any  other  business,  under  a  general  or  special  law  of  this  state, 
laundering  corporations,  manufacturing  corporations  to  the  extent  only 
of  the  capital  actually  employed  in  this  state  in  manufacturing,  and 
in  the  sale  of  the  product  of  such  manufacturing,  mining  corporations 
wholly  engaged  in  mining  ores  within  this  state,  agricultural  and  hor- 
ticultural societies  or  associations,  and  corporations,  joint  stock  com- 
panies or  associations  owning  or  operating  elevated  railroads  or  sur- 
face railroads  not  operated  by  steam,  or  formed  for  supplying  water 
or  gas  for  electric  or  steam  heating,  lighting  or  power  purposes,  and 
liable  to  a  tax  under  sections  one  hundred  and  eighty-five  and  one 
hundred  and  eighty-six  of  this  chapter,  shall  be  exempt  from  the  pay- 
ment of  the  taxes  prescribed  by  section  one  hundred  and  eighty-two 
of  this  chapter.  But  such  a  laundering,  manufacturing  or  mining 
corporation  shall  not  be  exempted  from  the  payment  of  such  tax,  unless 
at  least  forty  per  centum  of  the  capital  stock  of  such  corporation  is 
invested  in  property  in  this  state,  and  used  by  it  in  its  laundering, 
manufacturing  or  mining  business  in  this  state.  (Former  sec.  183, 
Tax  Law,  as  amended  by  ch.  785,  L.  1897,  ch.  558,  L.  1901,  and  ch. 
474,  L.  1906.) 

Source:  Ch.  542,  L.  1880,  as  amended  by  ch.  361,  L.  1881. 


ANNUAL  FRANCHISE   TAX   ON    CAPITAL   STOCK  25 

NOTE:  The  italicized  portions  of  the  above  Section  remain  parts 
of  the  existing  tax  law,  but  laundering,  manufacturing  and  mining 
corporations  are  no  longer  exempt  from  state  taxation.  While  they 
are  not  taxable  under  the  above  section,  they  must  pay  an  annual 
franchise  tax  on  net  income  under  Article  9-a  of  the  Tax  Law  (see 
Part  II  of  this  look).  They  are,  however,  exempt  from  the  local  per- 
sonal tax  to  which  they  were  formerly  subject. 

The  statute  covering  the  annual  franchise  tax  on  capital  stock 
under  Section  182  of  the  Tax  Law  and  the  method  of  appraisement 
under  Section  193  are  given  below: 

Franchise  tax  on  corporations. — For  the  privilege  of  exercising 
its  corporate  franchises  in  this  state  every  corporation,  joint  stock 
company  or  association,  and  for  the  purpose  of  doing  business  in  this 
state,  every  foreign  corporation,  joint  stock  company  or  association 
shall  pay  to  the  state  treasurer  annually,  in  advance,  an  annual  tax 
to  be  computed  upon  the  basis  of  the  amount  of  its  capital  stock,  em- 
ployed during  the  preceding  year  within  this  state,  and  upon  each 
dollar  of  such  amount.  The  measure  of  the  amount  of  capital  stock 
employed  in  this  state  shall  be  such  a  portion  of  the  issued  capital 
stock  as  the  gross  assets  employed  in  any  business  within  this  state 
bear  to  the  gross  assets  wherever  employed  in  business.  For  pur- 
poses of  taxation,  the  capital  of  a  corporation  invested  in  the  stock 
of  another  corporation  shall  be  deemed  to  be  assets  located  where 
the  physical  property  represented  by  such  stock  is  located.  If  the 
dividends  upon  the  capital  stock  amount  to  six,  or  more  than  six 
per  centum  upon  the  par  value  of  the  capital  stock,  during  any 
year  ending  with  the  thirty-first  day  of  October,  the  tax  shall  be  at 
the  rate  of  one-quarter  of  a  mill  for  each  one  per  centum  of  dividends 
made  or  declared  upon  the  par  value  of  the  capital  stock  during 
said  year.  If  such  dividend  or  dividends  amount  to  less  than  six  per 
centum  on  the  par  value  of  the  capital  stock,  and 

1.  The    assets    do    not    exceed   the   liabilities,    exclusive    of    capital 
stock,  or 

2.  The  average  price  at  which  such  stock  sold  during  said  year, 
did  not  equal  or  exceed  its  par  value,  or 

3.  If  no  dividend  was  declared, 

Then  each  dollar  of  the  amount  of  capital  stock  employed  in  this 
state,  determined  as  hereinbefore  provided,  shall  be  taxed  at  the  rate 
of  three-fourths  of  one  mill.  If  such  dividend  or  dividends  amount  to 
less  than  six  per  centum  on  the  par  value  of  the  capital  stock,  and 


CORPORATION   TAX    (ART.    9) 

1.  The  assets  exceed  the  liabilities,  exclusive  of  capital  stock,  by  an 
amount  equal  to  or  greater  than  the  par  value  of  the  capital  stock,  or 

2.  The  average  price  at  which  such  stock  sold  during  said  year  is 
equal  to  or  greater  than  the  par  value, 

Then  the  amount  of  capital  stock,  determined  as  hereinbefore  pro- 
vided to  be  employed  in  this  state,  shall  be  taxed  at  the  rate  of  one 
and  one-half  mills  on  each  dollar  of  the  valuation  of  the  capital  stock 
employed  in  this  state,  but  such  valuation  shall  not  be  less  than 

1.  The  par  value  of  such  stock. 

2.  The   difference  between  the   assets   and   liabilities,   exclusive   oi 
capital  stock. 

3.  The  average  price  at  which  such  stock  sold  during  said  year. 


If  such  corporation,  joint-stock  company  or  association  shall  have 
more  than  one  kind  of  capital  stock,  and  upon  one  of  such  kinds  of 
stock  a  dividend  or  dividends  amounting  to  six,  or  more  than  six 
percentum  upon  the  par  value  thereon  has  been  made  or  declared,  and 
upon  the  other  no  dividend  has  been  made  or  declared,  or  the  dividend 
or  dividends  made  or  declared  thereon  amount  to  less  than  six  per- 
centum upon  the  par  value  thereof,  then  the  tax  shall  be  at  the  rate 
of  one-quarter  of  a  mill  for  each  one  percentum  of  dividends  made  or 
declared  upon  the  capital  stock  upon  the  par  value  of  which  the  divi- 
dend or  dividends  made  or  declared  amount  to  six  or  more  than  six 
percentum,  and  in  addition  thereto  a  tax  shall  be  charged  upon  the 
capital  stock, 

1.  Upon  which  no  dividend  was  made  or  declared,  or 

2.  Upon  which  the  dividend  or  dividends  made  or  declared  did  not 
amount  to  six  per  centum  upon  the  par  value, 

At  the  rate  as  hereinbefore  provided  for  the  taxation  of  capital  stock 
upon  which  no  dividend  was  made  or  declared,  or  upon  which  the  divi- 
dend or  dividends  made  or  declared  did  not  amount  to  six  percentum 
on  the  par  value. 

All  corporations  not  taxable  under  the  preceding  paragraphs  of  this 
section  shall  be  taxed  in  an  amount  not  less  than  would  be  produced 
by  an  assessment  of  one  and  one-half  mills  on  each  one  dollar  of  the 
actual  value  of  its  capital  stock,  determined  to  be  employed  in  this 
state  as  hereinbefore  provided,  or  one  and  one-half  mills  upon  each 
dollar  of  such  capital  stock  at  the  average  price  at  which  said  stock 
sold  during  the  said  year.  (Sec.  182,  former  sec.  182.  Tax  Law,  as 


ANNUAL   FRANCHISE  TAX   ON   CAPITAL   STOCK  27 

amended  ly  ch.  558,  L.  1901,  oh.  474,  L.  1906,  ch.  734,  L.  1907,  and 
oh.  333,  L.  1916.)* 

Source:  Ch.  542,  L.  1880,  as  amended  by  ch.  361,  L.  1881. 

Recent  Amendments. — The  amendment  of  1916  struck  out  the  words 
"doing  business"  before  the  words  "exercising  its  corporate  franchise" 
and  made  it  clear  that  the  tax  was  to  apply  to  domestic  corporations 
"exercising  their  corporate  franchises  in  the  state"  and  foreign  cor- 
porations "doing  business  in  this  state."  This  was  in  line  with  the 
case  of  People  ex  rel.  Lehigh  &  N.  Y.  R.  Co.  v.  Sohmer,  217  N.  Y.  443, 
reversing  169  App.  Div.  430  (1916). 

*  NOTE  :  For  amount  of  franchise  tax  payable  by  corporations  in- 
corporated under  Chap.  351  L.  1912,  providing  for  shares  of  capital 
stock  without  nominal  or  par  value,  see  end  of  this  chapter. 

Value  of  stock  to  be  appraised. — If  the  dividend  or  dividends 
amount  to  less  than  six  per  centum  on  the  par  value  of  the  capital 
stock,  or  no  dividend  is  declared  the  president,  treasurer  or  secretary 
of  the  company  liable  to  pay  a  tax  under  the  provisions  of  section  one 
hundred  and  eighty-two  of  this  chapter,  shall,  under  oath,  between  the 
first  and  fifteenth  days  of  November  in  each  year,  estimate  and  ap- 
praise the  capital  stock  of  such  company  at  its  actual  value. 

And  shall  forward  the  same  to  the  tax  commission  with  the  report 
provided  for  in  the  last  section.  If  the  tax  commission  is  not  satisfied 
with  the  valuation  so  made  and  returned  it  is  authorized  and  em- 
powered to  make  a  valuation  thereof,  and  settle  an  account  upon  the 
valuation  so  made  by  it,  and  the  taxes,  penalties  and  interest  to  be 
paid  the  state.  (Sec.  193,  former  sec.  190,  Tax  Law,  as  amended  ~by 
ch.  474,  L.  1906,  ch.  734,  L.  1907,  and  ch.  317,  L.  1915.) 

Source:  Ch.  540,  L.  1880,  as  amended  by  ch.  361,  L.  1881. 

"Business"  corporations  no  longer  taxed  under  section  182. 

— The  principal  application  of  section  182  to  business  corporations 
has  now  been  greatly  limited  by  Article  9 -a,  which  takes  away 
from  section  182  mercantile,  and  business  corporations  generally, 
except  the  realty  and  holding  corporations  exempted  from  the  fran- 
chise tax  on  income  under  section  210.  Manufacturing,laundering 
and  mining  corporations  exempted  under  section  183,  are  now  taxed 
on  net  income  under  Article  9-a. 

Method  of  assessment  under  section  182: — Section  182  of 
the  Tax  Law  must  be  taken  in  connection  with  section  193  (for- 


28  CORPORATION    TAX    (ART.    9) 

mer  section  190)    which  it  supplements.     People  ex  rel.  N.   Y. 
&  E.  R.  Ferry  Co.  v.  Roberts,  168  N.  Y.  14  (1901). 

By  Chapter  474,  Laws  of  1896  and  Chapter  734,  Laws  of 
1907,  the  provisions  governing  the  annual  franchise  tax  (Sections 
182,  193  Tax  Law)  were  materially  amended  in  the  following 
particulars : 

1.  The  franchise  tax  was  declared  to  be  payable  in  advance. 

2.  A   rule  was   provided   in   the   statute   itself,   by   which  the 
amount  of  capital  stock  employed  within  and  without  the  state 
could  be  easily  determined. 

3.  A  method  was  provided  in  the  statute  for  determining  the 
amount  of  capital  stock  employed  within  the  state  represented  by 
stock  in  other  corporations,  owned  by  the  company  taxed. 

4.  Corporations  paying  less  than  6  per  cent,  dividends,  or  pay- 
ing no  dividends,  were  re-classified  in  two  divisions,  so  that  a  dif- 
ferent rate  applied  to  them  as  they  fell  into  one  or-  the  other  classi- 
fication. 

The  arrangement  under  section  182  is  confusing  and  does  not 
lend  itself  easily  to  any  accurate  grouping  or  classification  of  cor- 
porations. The  evident  intent  of  the  statute  was  to  group  corpora- 
tions into  classes  according  to  the  amount  of  dividend  paid,  and 
vary  the  rate  on  that  basis.  In  the  case  of  corporations  paying 
dividends  of  less  than  six  per  cent.,  there  is  also  a  variation  of 
the  rate,  depending  upon  the  market  price  of  the  stock  or  the 
value  of  the  net  assets.  The  following  general  classification  seems 
to  be  called  for  by  the  statute: 

(1)  Corporations  paying  dividends  of  six  per  cent,  or  more, 
which  are  taxed  at  the  rate  of  one-quarter  of  a  mill  for  each  per 
cent,  of  dividend  declared  on  the  par  value  of  the  capital  stock, 
without  reference  to  the  market  price  of  the  stock  or  the  value  of 
the  assets.     There  is  no  change  here  from  the  law  prior  to  the 
amendment  of  1906. 

(2)  Corporations  paying  no  dividend,  which  are  taxed  at  the 
rate  of  three-quarters  of  a  mill  on  the  appraised  value  of  the  capital 


ANNUAL   FRANCHISE   TAX   ON   CAPITAL  STOCK  29 

stock.  There  is  no  minimum  valuation  here,  and  under  the  ap- 
praisement provided  by  section  193  (formerly  190),  the  tax  may 
be  nominal. 

(3)    Corporations  paying  dividends  of  less  than  six  per  cent., 
which  are  subdivided  into  two  classes: 

(a)  Corporations  paying  dividends  of  less  than  six  per  cent., 
whose  assets  exceed  the  liabilities  by  an  amount  equal  to  or  greater 
than  the  capital  stock,  or  in  which  the  average  price  of  the  stock 
sold  during  the  year  was  par  or  over,  and  not  included  in  the  classi- 
fication provided  for  in  subdivision  (b)  infra,  of  corporations  pay- 
ing  at  the  three-quarter  mill  rate.     In  either  case,  the  capital 
stock  is  taxed  at  the  rate  of  one  and  one-half  mills  on  the  ap- 
praised value,  but  such  appraised  value  shall  not  be 

less  than  the  par  value  of  the  stock  or 

less  than  the  difference  between  the  assets  and  lia- 
bilities, or 

less  than  the  average  price  at  which  the  stock  sold 
during  the  year. 

The  minimum  valuation  here  is  the  par  value  of  the  stock. 

(b)  The  second  subdivision  of  corporations  paying  dividends 
of  less  than  six  per  cent.,  is  that  class  of  corporations  in  which 
the  average  price  of  the  stock  sold  during  the  year  was  less  than 
par,  or  whose  assets  do  not  exceed  the  liabilities  exclusive  of  capital 
stock.     In  either  case,  the  tax  to  be  paid  is  three-quarters  of  a 
mil]   on  the  appraised  value  of  the  capital  stock.     There  is  no 
minimum  valuation  in  this  class,  and  under  the  appraisement  pro- 
vided for  by  section  193   (formerly  section  190)   the  tax  may  be 
nominal.    It  may  have  been  intended  by  the  framers  of  the  amend- 
ment of  1906  to  take  into  account  a  minimum  valuation  of  par 
for  this  class  of  corporations,  but  the  statute  did  not  clearly  ex- 
press it,  and  after  the  amendment  of  section  193   (formerly  sec- 
tion 190),  it  was  decided  by  a  divided  court  of  four  to  three  in 
People  ex  rel.  N.  Y.  Mail  &  Transportation  Co.  v.  Gaus,  198  N".  Y. 
250,  that  the  valuation  referred  to  in  this  part  of  section  182  by 


30  CORPORATION   TAX    (ART.    9) 

the  words  "each  dollar  of  the  amount  of  capital  stock  employed  in 
this  state"  was  the  appraised  valuation  provided  by  section  193 
(formerly  190). 

(4)  There  is  yet  another  group  or  class  of  corporations,  consist- 
ing of  all  corporations  not  taxable  under  the  preceding  classifica- 
tions. An  example  of  this  class  would  be  corporations  paying 
dividends  of  less  than  six  per  cent.,  where  there  was  no  stock  sold 
during  the  year,  and  hence  no  market  price,  and  where  the  assets 
exceed  the  liabilities,  but  not  by  an  amount  equal  to  or  greater  than 
the  capital  stock.  This  class  is  taxable  at  the  rate  of  one  and  one- 
half  mills  on  the  actual  (or  appraised)  value  of  the  capital  stock. 
This  group  was  added  by  the  drag-net  clause  of  the  amendment  of 
1907. 

Ambiguity  as  to  rate  decided  in  taxpayer's  favor. — If  a  cor- 
poration, paying  dividends  of  less  than  six  per  cent,  falls  under 
one  alternative  subdivision,  in  the  second  paragraph  of  sectioi 
182,  requiring  it  to  pay  the  rate  of  three-quarters  of  a  mill,  and 
also  an  alternative  subdivision  of  the  third  paragraph  or  class  of 
section  182,  providing  for  the  rate  of  one  and  one-half  mills,  the 
practice  had  been  to  assess  the  tax  at  the  higher  rate.  For  ex- 
ample, if  the  average  market  price  of  the  stock  of  such  a  corpora- 
tion was  below  par,  but  the  assets  exceeded  the  liabilities  by  more 
than  the  capital  stock,  it  fell  at  the  same  time  under  an  alterna- 
tive subdivision  of  the  second  class,  paying  the  three-quarters  mill 
rate,  and  also  of  the  third  class  paying  the  one  and  one-half  mill 
rate.  The  legality  of  this  practice  was  questioned  on  the  general 
theory  that  revenue  laws  should  be  strictly  construed,  and  that  any 
ambiguity  in  the  Tax  Law  should  be  resolved  in  favor  of  the  pub- 
lic. Brown  v.  Commonwealth,  98  Va.  366;  San  Francisco  F.  L. 
Co.  v.  Banbury,  106  Cal.  129;  Cooley  on  Taxation,  3rd  Ed.  459. 

In  People  ex  rel.  American  Bank  Note  Co.  v.  Sohmer,  157  App. 
Div.  1  (1913),  affirmed  210  K  Y.  621,  this  question  was  raised, 
and  the  court  held  that  since  the  reading  of  the  statute  disclosed  an 
inconsistency  under  the  general  principles  of  interpretation,  the 
taxpayer  was  entitled  to  the  most  favorable  reading,  and  that  the> 


• 


ANNUAL  FRANCHISE   TAX   ON    CAPITAL   STOCK  31 

common  stock  of  the  corporation  should  therefore  be  taxed  at  the 
three-quarter  mill  rate.  This  decision  is  in  line  with  the  opinion 
in  People  ex  rel  N.  Y.  Mail  &  N.  T.  Co.  v.  Gaus,  198  N.  Y.  255, 
interpreting  another  phase  of  the  same  statute,  and  holding  that 
"the  benefit  of  the  doubt  and  uncertainty  as  to  the  meaning  of  the 
statute  must  be  given  to  the  relator  and  not  to  the  state." 

Measure  of  the  amount  of  capital  stock  employed  in  the 
state  and  method  of  computing  franchise  tax  in  any  given 

case. — The  amount  of  the  franchise  tax  to  be  paid  under  section 
182  of  the  Tax  Law  in  any  given  case  depends  upon  the  following 
facts : 

In  the  case  of  all  corporations  having  property  or  assets  within 
and  without  the  state,  it  depends  upon  the  amount  of  gross  assets 
or  capital  employed  within  the  state.  This  amount  bears  the 
same  relation  to  the  total  issued  capital  that  the  gross  assets  in 
the  state  bear  to  the  total  gross  assets. 

In  the  case  of  corporations  paying  dividends  of  six  per  cent, 
or  more,  it  depends  upon  the  amount  of  issued  capital  stock  at 
par  employed  within  the  state  and  the  rate  of  dividend. 

In  the  case  of  corporations  paying  no  dividend,  it  depends  upon 
the  actual  value  of  the  amount  of  capital  stock,  which  may  be 
nominal,  and  the  tax  may  be  nothing.  So  also  in  the  case  of  cor- 
porations paying  dividends  of  less  than  six  per  cent.,  whose  assets 
do  not  exceed  the  liabilities,  or  whose  average  market  price  is  be- 
low par.  In  this  case,  too,  the  tax  may  be  nominal. 

In  the  case  of  corporations  paying  dividends  of  less  than  six 
per  cent.,  when  the  assets  exceed  the  liabilities  by  an  amount  equal 
to  or  greater  than  the  capital  stock,  or  when  the  average  market 
price  is  above  par  (and  not  coming  under  the  three-quarter  mill 
rate  supra),  it  depends  upon  the  value  of  the  net  assets,  the  mar- 
ket price  of  the  stock  and  the  par  value  of  the  capital  stock,  which- 
ever of  these  values  is  highest.  The  minimum  appraisement  is 
here  the  par  value  of  the  capital  stock. 


32  CORPORATION    TAX    (ART.    9) 

If  all  the  corporation's  assets  are  in  the  state,  the  amount  of  the 
capital  stock  employed  in  the  state  will  equal  the  issued  capital 
stock.  The  value  of  the  capital  stock  in  this  instance  and  the  rate 
at  which  the  franchise  tax  is  computed  will  depend  upon  the  con- 
ditions set  forth  in  the  illustrations  hereinafter  mentioned. 


Illustrations. 

Corporations  paying  dividends  of  6%  or  more;  rate  % 
mill  for  each  i%  of  dividend,  at  par. — If  a  corporation  whose 
entire  capital  stock  of  $100,000  is  invested  in  this  state,  paid  a 
dividend  of  eight  per  cent.,  it  would  be  subject  to  a  franchise  tax 
under  section  182  of  the  Tax  Law  of  one-fourth  of  a  mill  for  each 
one  per  cent,  of  dividend,  or  two  mills  on  $100,000,  of  capital  stock, 
viz.,  $200.  Under  section  182  this  rate  is  on  the  par  value  of  the 
issued  capital  stock  without  regard  to  the  market  price  or  to  the 
actual  value  of  the  assets. 

If  the  corporation's  capital  is  $100,000,  all  of  which  is  issued, 
and  it  is  engaged  in  business  within  this  state  and  also  without 
the  state,  and  if  the  assets  within  the  state  of  $120,000  and 
its  assets  without  the  state  are  $30,000,  the  proportion  of 
capital  stock  within  the  state  subject  to  taxation  under  section 
182  of  the  Tax  Law  would  be  120,000/150,000,  or  four-fifths  of 
$100,000=$80,000.  If  the  dividend  declared  on  the  capital  stock 
was  eight  per  cent.,  the  tax  under  section  182  would  be  at  the 
rate  of  one-fourth  of  a  mill  for  each  per  cent,  of  dividend  or  two 
mills  on  $80,000,  viz.,  $160. 

Corporations  paying  no  dividend.  Rate  %  mill  at  appraised 
value. — If  we  take  the  case  of  the  corporation  mentioned  with 
$100,000  of  capital,  but  paying  no  dividend,  it  would  be  subject 
to  a  franchise  tax  at  the  rate  of  three-fourths  of  a  mill  on  the  ap- 
praised value  of  the  capital  stock  employed  within  the  state  at  its 
actual  or  appraised  value  under  sections  182  and  193  (formerly 
190),  of  the  Tax  Law.  There  is  no  minimum  valuation  here  and 
under  the  appraisement  provided  for  by  section  193,  the  tax  may 


ANNUAL   FRANCHISE   TAX   ON    CAPITAL   STOCK  33 

be  nominal;  for  instance,  if  the  gross  assets  are  $150,000  and  the 
liabilities  $90,000,  making  the  net  assets  $60,000,  and  the  average 
market  price  of  the  stock  $80,  the  tax  to  be  paid  would  be  ap- 
praised at  a  valuation  of  $80  per  share,  which  would  mean  that 
the  valuation  would  be  $80,000  at  three-fourths  of  a  mill  or  $60 
for  the  tax.  But  if  the  assets  were  $150,000  and  the  liabilities 
$160,000,  with  no  market  price  (no  stock  sold),  the  tax  would  be 
three-fourths  of  a  mill  on  a  net  valuation  of  zero,  and  the  tax 
would  be  nothing. 

Corporations  paying  dividends  of  less  than  six  per  cent., 
where  the  assets  do  not  exceed  the  liabilities,  or  where  the 
average  market  price  of  the  stock  does  not  equal  or  exceed  par. 
Rate  %  mill  on  appraised  valuation. — The  first  case  presented 
under  this  subdivision  is  hardly  a  practical  or  even  a  legal  proposi- 
tion, for  it  presents  the  hypothesis  of  an  insolvent  corporation  pay- 
ing dividends,  for  instance: 

If  we  take  the  corporation  having  a  capital  stock  of  $100,000 
all  issued  and  employed  within  the  state,  paying  a  dividend  of 
less  than  six  per  cent. ;  if  it  had  gross  assets  of  $100,000  and 
liabilities  $110,000,  or  if  its  market  price  was  not  equal  to  or 
greater  than  par,  it  would  pay  a  franchise  tax  of  three-fourths 
of  a  mill  on  the  actual  or  appraised  value  of  the  capital  stock  em- 
ployed within  the  state.  This  is  a  possible  case  under  this  subdivi- 
sion as  the  law  is  framed,  but  not  at  all  probable. 

If  we  take  the  case  of  the  corporation  mentioned  in  the  last 
paragraph,  with  a  capital  stock  of  $100,000,  all  issued  and  em- 
ployed in  the  state,  paying  a  dividend  of  less  than  six  per  cent, 
and  with  the  market  price  of  the  stock  at  $80,  it  will  only  pay  a 
tax  of  three-fourths  of  a  mill  on  the  appraised  value  of  its  capital 
stock  employed  within  the  state.  If  the  gross  assets  were  $150,000, 
and  the  liabilities  $90,000,  an  appraisement  of  $60,000  might  be 
justified,  though  less  than  the  market  price,  in  which  event  the  tax 
would  be  $45. 

A  corporation  having  part  of  its  assets  within  and  part  with- 
out the  state  is  taxed  under  the  same  rules,  except  that  in  each 


34  CORPORATION   TAX    (ART.    9) 

case  it  would  be  taxed  on  the  proportion  of  the  capital  stock  rep- 
resented by  the  gross  assets  within  the  state. 

Corporations  paying  dividends  of  less  than  six  per  cent, 
showing  a  surplus,  or  with  market  price  above  par.  Rate  i% 
mills. — The  next  subdivision  brings  into  consideration  those  cor- 
porations paying  less  than  six  per  cent,  (not  coming  under  the 
three-quarter  mitt  rate  supra),  whose  assets  exceed  the  liabilities 
by  an  amount  equal  to  or  greater  than  the  capital  stock,  i.e.,  cor- 
porations with  a  surplus,  or  whose  market  price  is  equal  to,  or  above 
par. 

If  we  take  the  case  of  the  corporation  mentioned,  having  a 
capital  stock  of  $100,000,  all  employed  within  the  state  and  pay- 
ing dividends  of  less  than  six  per  cent.,  with  gross  assets  of 
$220,000  and  liabilities  of  $100,000,  the  net  assets  would  be 
$120,000,  and  if  the  average  market  price  for  the  stock  were  $110, 
in  this  case,  the  rate  would  be  l^  mills,  to  be  computed  not  on 
the  $100,000  of  capital  stock  at  par  value,  or  at  the  market  price 
of  $110,  but  on  $120,000,  the  net  assets,  which  under  the  third 
paragraph  of  section  182  are  deemed  to  be  the  value  of  the  capital 
stock  employed  within  the  state. 

If  we  take  the  same  corporation  paying  a  dividend  of  less  than 
six  per  cent,  with  the  same  net  assets  of  $120,000,  but  with  the 
market  price  of  the  stock  at  $125,  making  the  value  of  the  capital 
stock  employed  within  the  state  $125,000,  the  rate  of  1%  mills 
would  then  be  computed  on  this  latter  amount,  which  is  higher 
than  either  the  par  value  of  the  capital  stock  or  the  net  value  of 
the  assets. 

If  we  take  the  same  corporation  paying  dividends  of  less  than 
six  per  cent.,  with  gross  assets  of  $200,000  and  liabilities  of 
$100,000,  making  the  net  assets  exactly  $100,000  or  par,  the  rate 
of  1%  mills  would  be  computed  on  that  figure,  provided  the  mar- 
ket price  is  not  less  than  par. 

Again  taking  the  case  of  the  corporation  with  $100,000  of  capital, 
all  employed  within  the  state,  and  paying  less  than  six  per  cent.,  if 
the  average  selling  price  of  the  stock  was  at  $120  during  the  year, 


ANNUAL   FRANCHISE   TAX   ON    CAPITAL   STOCK  35 

and  if  the  gross  assets  were  $150,000,  and  the  liabilities  $70,000, 
making  the  net  assets  $80,000,  or  less  than  par,  in  this  case  the 
rate  would  be  l1/^  mills,  to  be  computed  on  the  capital  stock  of 
$100,000,  at  $120,  or  on  $120,000,  making  the  tax  $180. 

The  same  figures  in  the  last  paragraph  might  be  applied  to  the 
case  of  a  corporation  whose  capital  was  partly  employed  within 
and  partly  without  the  state,  the  only  difference  in  this  case  be- 
ing that  the  tax  would  be  based  on  the  proportion  of  the  capital 
stock  represented  by  the  amount  of  the  gross  assets  within  the 
state. 

Drag  net  clause.  Rate  i%  mills. — The  next  subdivision  in- 
cludes all  corporations  not  coming  under  any  other  paragraph.  An 
example  of  this  class  would  be  one  whose  assets  exceed  the  liabili- 
ties, but  by  an  amount  less  than  the  par  value  of  the  capital  stock. 

For  example,  we  will  take  a  corporation  whose  capital  stock  is 
$100,000,  all  issued  and  employed  in  the  state.  The  gross  assets 
are  $150,000  and  the  liabilities  are  $70,000,  with  a  dividend  of 
four  per  cent,  declared,  but  no  stock  sold  during  the  year.  It 
manifestly  does  not  come  under  subdivision  1,  paying  dividends  of 
six  per  cent,  or  more,  nor  does  it  come  under  subdivision  2,  of 
section  182,  because  its  assets  exceed  its  liabilities  by  an  amount 
not  equal  to  or  greater  than  the  capital  stock,  nor  was  its  market 
price  below  par,  because  the  stock  was  not  sold  during  the  year. 
Neither  does  it  come  under  subdivision  3,  of  section  182,  because 
its  assets  did  not  exceed  its  liabilities  by  an  amount  equal  to  or 
greater  than  the  capital  stock  at  par,  nor  was  its  market  price 
above  par,  there  being  no  stock  sold.  It  therefore  comes  under 
subdivision  4,  and  pays  a  tax,  in  this  case,  of  iy2  mills  under  the 
last  paragraph  of  section  182  on  the  actual  value  of  the  capital 
stock,  or  on  $80,000,  viz.,  $120. 

Corporations  having  more  than  one  kind  of  capital  stock. — 

A  class  of  cases,  for  which  no  illustrations  have  yet  been  furnished, 
is  the  fourth  or  last  class  but  one,  mentioned  in  section  182,  viz., 
that  of  a  corporation  paying  dividends  on  two  kinds  of  stock,  or 


36  CORPORATION   TAX    (ART.    9) 

paying  no  dividend  on  one  kind  of  stock,  and  paying  dividends  of 
six  per  cent,  or  more,  or  less  than  six  per  cent,  on  the  other  kind 
of  stock.  Take  for  example,  a  corporation  having  a  capital  stock 
of  $100,000,  divided  into  $40,000  of  preferred  and  $60,000  of  com- 
mon stock,  which  pays  a  dividend  of  eight  per  cent,  on  the  pre- 
ferred and  four  per  cent,  on  the  common,  with  the  common  stock 
selling  at  $60  and  the  net  assets,  $120,000.  It  will  pay  a  tax  on 
the  par  value  of  $40,000  of  preferred  stock  at  the  rate  of  two 
mills,  making  the  tax  $80.  The  common  stock  will  pay  a  tax 
of  %  mill  on  $60,000,  at  a  valuation  of  $120,000  for  the  $100,000 
of  capital  stock,  or  at  6-5  of  $60,000,  making  the  valuation  of  the 
common  stock  $72,000,  and  the  tax  will  be  $54.  The  entire  tax 
to  be  paid  by  this  corporation  will  be  $134. 

The  provision  in  the  statute  covering  this  subdivision  has  evi- 
dent reference  to  the  ordinary  case  of  preferred  and  common  stock. 
People  ex  rel.  N.  Y.  C.  &  H.  R.  R.  Co.  v.  Gaus,  200  N.  Y.  328 
(1911). 

Annual  franchise  tax  payable  in  advance. — The  amendment 
of  1906  makes  the  annual  franchise  tax  payable  in  advance,  but 
the  basis  of  the  tax  is  computed  on  the  capital  stock  employed  dur- 
ing the  preceding  year,  unless  the  capital  stock  was  increased  prior 
to  October  31st,  when  it  seems  the  tax  will  be  payable  on  the  in- 
creased amount,  because  payable  in  advance.  People  ex  rel.  N.  Y. 
C.  &  H.  R.  R.  Co.  v.  Gaus,  200  N.  Y.  328  (1911).  In  People  ex 
rel.  Mercantile  8.  D.  Co.  v.  Solimer,  158  App.  Div.  110  (1913), 
where  there  had  been  a  distribution  of  profits  of  $880,250  on 
$300,000  of  outstanding  capital  stock,  and  the  stock  reduced  at 
the  end  of  the  year  to  $100,000,  the  court  held  that  it  was  the 
capital  stock  on  which  the  dividends  were  paid  within  the  year, 
and  jiot  the  amount  outstanding  at  the  end  of  the  year  on  which 
no  dividends  were  paid,  that  determined  the  rate  of  dividend  and 
the  basis  of  the  tax.  If  the  corporation  ceases  to  do  business  be- 
fore the  end  of  the  fiscal  year,  it  escapes  taxation  for  the  ensuing 
year.  If  the  corporation  was  organized  during  the  preceding  year 
and  only  in  business  for  a  portion  of  the  year,  on  October  31st  it 


ANNUAL   FRANCHISE   TAX   ON    CAPITAL   STOCK  37 

will  pay  on  the  average  capital,  irrespective  of  the  time  employed, 
because  the  tax  is  payable  in  advance. 

Average  capital  and  average  market  price. — Where  section 
182  of  the  Tax  Law  requires  the  actual  capital  to  be  ascertained, 
the  rule  for  determining  it,  is  to  take  it  for  the  entire  fiscal  year 
and  divide  it  by  the  number  of  days.  The  same  general  principles 
were  applied  prior  to  the  amendment  of  1906  in  ascertaining  the 
average  value  of  the  capital  employed  during  the  year.  If  the 
capital  was  employed  for  less  than  a  year,  the  tax  was  based  on  its 
average  employment  for  the  year.  People  ex  rel.  Brooklyn  Rapid 
Transit  Co.  v.  Morgan,  57  App.  Div.  335,  affd  168  K  Y.  672; 
People  ex  rel.  Mutual  Trust  Co.  v.  Miller,  177  N.  Y.  51  (1903)  ; 
People  ex  rel,  Bees'  Sons  v.  Miller,  90  App.  Div.  592  (1904) ; 
People  ex  rel.  Cohen  &  Co.  v.  Miller,  94  App.  Div.  564  (1904). 
Since  the  amendment  of  1906,  it  would  seem  that  where  the  capital 
stock  has  been  increased  during  the  year  the  capital  employed  at 
the  end  of  the  preceding  fiscal  year,  viz.,  the  capital  stock  outstand- 
ing on  October  31st,  would  govern  the  amount  on  which  the  tax  was 
payable.  People  ex  rel.  N.  Y.  C.  &  H.  R.  R.  Co.  v.  Gaus,  supra. 
The  average  price  of  stock  is  to  be  determined  from  the  different 
sales  irrespective  of  the  amount  sold  on  the  various  sales.  People 
ex  rel.  Amer.  BJk  Note  Co.  v.  Sohmer,  157  App.  Div.  1  (1913). 

How  intrinsic  value  is  ascertained;  debts  to  be  deducted. — 

Where  the  various  provisions  of  section  182  require  the  intrinsic 
or  actual  value  to  be  ascertained,  it  should  be  determined  by  de- 
ducting the  liabilities  from  the  assets.  People  ex  rel.  Lorena  Co. 
v.  Morgan,  55  App.  Div.  265  (1900) ;  People  ex  rel.  J.  B.  Co.  v. 
Roberts,  37  App.  Div.  1  (1899).  If  the  good  will  of  the  business 
has  any  value  that  is  to  be  added  to  the  net  assets  so  ascertained. 
People  ex  rel.  Wiebusch  &  Hilger  Co.  v.  Roberts,  19  App.  Div. 
574;  affd  154  N.  Y.  101  (1897).  Under  the  law,  prior  to  1906, 
the  comptroller  was  not  required  to  ascertain  the  intrinsic  or 
actual  value  of  the  stock  in  cash  unless  such  intrinsic  value  ex- 
ceeded the  market  value.  People  ex  rel.  Brooklyn  El.  R.  R.  Co.  v. 
Roberts,  90  Hun,  537  (1895).  This  was  so  even  though  the  as- 


38  CORPORATION   TAX    (ART.    9) 

sessment  made  by  the  comptroller,  based  on  such  average  price, 
was  more  than  the  par  value  of  the  stock  and  thus  indirectly  as- 
sessed on  surplus,  for  the  dividends  over  six  per  cent,  may  be  ac- 
cumulated in  the  form  of  surplus,  which,  if  profits  had  been 
declared,  would  have  increased  the  assessment.  People  ex  rel. 
Colonial  Trust  Co.  v.  Morgan,  47  App.  Div.  126  (1900).  Under 
the  present  statute,  if  the  dividends  are  six  per  cent,  or  more,  the 
intrinsic  value  need  not  be  ascertained,  and  no  appraisement  is 
necessary  under  section  193  (former  sec.  190)  of  the  Tax  Law. 

What  debts  not  deducted. — A  foreign  corporation  cannot  de- 
duct its  general  indebtedness  arising  from  its  business  done 
throughout  the  country  generally,  but  only  the  specific  indebted- 
ness arising  out  of  the  business  done  in  this  state.  People  ex  rel. 
Nat'l  Enameling  Co.  v.  Miller,  112  App.  Div.  880  (1906).  In  an 
earlier  case  (People  ex  rel.  Hyde  &  Sons  v.  Miller,  90  App.  Div. 
599  [1904] ;  afFd  179  N.  Y.  564)  it  was  held  that  only  that  part 
of  the  total  indebtedness  should  be  deducted,  which  the  assets  with- 
in the  state  bore  to  the  total  assets  of  the  company. 

Actual  value  not  "book  value";  good-will. — "Book  value" 
does  not  govern  the  valuation  to  be  made  where  intrinsic  value  ia 
to  be  ascertained.  Where  a  corporation's  entire  business  is  in 
New  York  and  has  been  acquired  from  a  firm  of  similar  name 
doing  business  in  New  York,  together  with  the  good-will  of  that 
firm,  the  value  of  the  good-will  and  name  of  the  firm  is  part  of 
the  capital  employed  in  the  state.  J.  B.  Co.  v.  Roberts,  supra. 
The  right  to  tax  the  good- will  was  upheld  in  People  ex  rel.  John- 
son Co.  v.  Roberts,  159  N.  Y.  70  (1899),  and  in  the  Wiebusch  case, 
supra. 

No  unequal  taxation  because  lesser  dividends  pay  higher 
tax. — Where  the  dividends  are  less  than  six  per  cent,  and  the 
price  of  the  stock  above  par  there  is  no  unequal  or  unjust  taxation, 
because  the  corporation  is  obliged  to  pay  a  larger  tax  than  for  pay- 
ing a  dividend  of  six  per  cent,  or  over.  People  v.  President,  &c.,  D. 
&  H.  Canal  Co.,  54  Hun,  598  (1889) ;  see,  also,  People  ex  rel. 


ANNUAL  FRANCHISE  TAX   ON   CAPITAL   STOCK  39 

N.  Y.  C.  &  H.  R.  R.  Co.  v.  Knight,  173  K  Y.  255  (1903) ;  People 
ex  rel.  Hyde  &  Sons  v.  Miller,  90  App.  Div.  599  (1904)  ;  affd 
179  K  Y.  564. 

Stock  dividends. — Whether  the  payment  of  a  stock  dividend 
shall  be  considered  a  distribution  of  profits  or  an  adjustment  of 
capital  depends  upon  the  circumstances  in  each  case.  If  it  is  paid 
out  of  surplus  profits,  it  will  be  considered  a  dividend  and  taxed 
accordingly.  People  ex  rel.  Pullman  Co.  v.  Glynn,  130  App.  Div. 
332  (1909),  affirmed,  198  N.  Y.  605.  If  it  is  a  distribution  of  the 
capital  not  representing  profits,  it  will  not  be  considered  the  basis 
for  computing  the  tax.  People  ex  rel.  North  American  Trust  Com- 
pany v.  Knight,  96  App.  Div.  120.  Where  stock  is  surrendered 
equal  in  amount  to  the  dividend  paid  it  will  be  considered  a  de- 
pletion of  capital  stock  and  not  a  payment  of  dividend.  People 
ex  rel.  Port  Morris  Land  &  Improvement  Co.  v.  Glynn,  205  N".  Y. 
578  (1912),  modifying  148  App.  Div.  908 ;  but  if  a  corporation  hav- 
ing issued  $300,000  of  capital  stock  and  having  purchased  with 
$200,000  thereof,  the  good-will,  business  and  lease  of  another 
company  and  invested  the  remaining  $100,000  in  securities,  after- 
wards realized  $1,050,000  for  its  lease,  and  divides  this  amount 
among  its  shareholders  representing  the  $300,000  of  capital  stock, 
which  is  then  reduced  to  $100,000,  under  such  circumstances,  the 
sum  of  $850,000  will  be  considered  as  a  stock  dividend  and  not  as 
a  distribution  of  capital.  People  ex  rel.  Mercantile  8.  D.  Co.  v. 
Sohmer,  158  App.  Div.  110  (1913). 

Distribution  of  amount  realized  in  condemnation  proceed- 
ings not  to  be  construed  as  dividends. — Where  a  corporation 
distributes  the  greater  part  of  an  award  it  has  received  in  con- 
demnation proceedings,  among  its  stockholders,  and  thereafter 
does  no  business,  the  comptroller  in  assessing  the  franchise  tax 
should  not  consider  such  award  so  distributed  as  dividend.  People 
ex  rel.  Jerome  Park  Villa  Site  &  Imp.  Co.  v.  Eoberts,  41  App. 
Div.  21  (1899). 

United  States  securities. — The  property  of  a  corporation  in- 
vested in  United  States  securities  is  taxable  under  section  182; 


40 


CORPORATION   TAX 


the  tax  is  not  on  the  property,  but  on  the  corporate  franchises. 
Home  Ins.  Co.  v.  N.  Y.,  134  U.  S.  594  (1890). 

Patent  rights. — The  tax  on  that  part  of  a  corporation's  capi- 
tal invested  in  patent  rights  is  not  contrary  to  the  United  States 
Constitution.  The  tax  is  on  the  franchise  or  business,  no  matter 
how  the  corporate  capital  is  invested.  People  ex  rel.  Edison  E. 
Ilium.  Co.  v.  Wemple,  61  Hun,  53  (1891) ;  see,  also,  Home  Ins. 
case,  supra.  And  if  the  entire  capital  is  invested  in  patent  rights, 
the  rule  is  not  otherwise.  People  ex  rel.  U.  8.  Aluminum  Plate 
Co.  v.  Knight,  174  N.  Y.  475  (1903) ;  rev'g  67  App.  Div.  333. 

Trade  marks. — The  same  rule  applies  to  the  case  of  a  foreign 
corporation  doing  business  in  this  state,  having  part  of  its  capi- 
tal invested  in  a  trade  mark.  People  ex  rel.  Spencerian  Pen  Co. 
v.  Kelsey,  105  App.  Div.  133  (1905). 

How  good-will  and  patents  may  be  valued. — In  estimating 
the  value  of  the  good-will  it  is  not  improper  to  assume  that  it  is 
worth  the  price  paid  for  it.  People  ex  rel.  Keochl  &  Co.  v.  Mor- 
gan, 96  App.  Div.  110  (1904).  This  rule  also  appears  to  be 
true  in  the  case  of  patents.  People  ex  rel.  Automatic  Vending 
Co.  v.  Kelsey,  101  App.  Div.  325  (1905)  ;  particularly  if  the 
company  has  been  paying  dividends  of  six  per  cent,  on  its  entire 
authorized  capital  stock.  Ibid. 

Realty  corporations. — There  has  been  a  lack  of  uniformity 
in  the  law  in  cases  affecting  the  taxation  of  corporations  invest- 
ing their  capital  in  real  estate.  For  example,  it  has  been  held 
that  the  capital  of  a  corporation  invested  in  unproductive  real 
estate,  like  swamp  land,  was  not  "capital  employed  within  the 
state"  and,  therefore,  not  taxable.  People  ex  rel.  Niagara  R. 
Hydraulic  Co.  v.  Roberts,  30  App.  Div.  180  (1898)  ;  aff'd  157 
N.  Y.  676.  And  in  an  earlier  case,  it  was  held  that  the  franchise 
tax  did  not  apply  to  real  estate  bought  with  the  surplus  of  the 
corporation  and  not  used  in  the  business.  People  ex  rel.  Singer 
Mfg.  Co.  v.  Wemple,  150  N.  Y.  46  (1896).  A  more  recent  case 
to  the  same  effect  is  that  of  People  ex  rel.  Fort  George  Co.  v.  Mil- 


ANNUAL  FRANCHISE  TAX   ON   CAPITAL  STOCK  41 

ler,  179  N.  Y.  49  (1904),  in  which  the  Court  of  Appeals  by  a  di- 
vided court  of  four  to  three  held  that  the  capital  stock  of  a  cor- 
poration invested  in  unimproved  New  York  City  land  was  not 
employed  in  business  in  the  state. 

On  the  other  hand,  in  People  ex  rel.  Wall  &  H.  St.  Realty  Co.  v. 
Miller,  181  N.  Y.  328  (1905);  a  realty  corporation  incorporated 
for  the  purpose  of,  and  actively  engaged  in,  leasing  and  managing 
a  large  office  building,  with  the  right  to  acquire  and  sell  both  real 
and  personal  property  and  to  carry  on  any  other  business  which 
could  be  conveniently  conducted,  was  held  to  be  taxable  on  this 
property  as  "capital  employed." 

The  Court  of  Appeals  in  the  last  named  case,  by  a  divided 
court,  of  four  to  three,  in  its  prevailing  opinion,  distinguishes  the 
three  cases  cited  in  the  last  paragraph  from  the  one  then  before 
it  on  the  ground  that  the  company  in  that  case  was  found  to  do 
a  realty  business,  and  was  not  exempt  by  reason  of  its  business 
from  the  franchise  tax.  The  dissenting  opinion,  in  this  case, 
which  is  concurred  in  by  two  of  the  judges  who  wrote  the  pre- 
vailing opinion  in  the  Fort  George  case,  points  out  that  there  is 
no  material  difference  between  the  three  cases  above  cited  and 
that  of  the  Fort  George  Company,  and  that  if  the  court  is  to  stand 
on  the  doctrine  of  stare  decisis,  the  Wall  Street  Eealty  Co.  would 
be  exempt  from  taxation  on  similar  grounds.  The  Wall  Street 
Realty  Co.  case  was  followed  in  People  ex  rel.  Hubert  Apt.  Assn. 
v.  Kelsey,  110  App.  Div.  618  (1906)  affd  184  N.  Y.  573. 

The  amendment  of  1906  bases  the  amount  of  "capital  stock 
employed"  on  the  gross  assets  wherever  employed,  and  realty 
companies  would  hence  seem  to  be  taxable  thereunder  whether  the 
capital  was  productively  or  unproductively  invested. 

In  People  ex  rel.  Fifth  Ave.  Bldg.  Co.  v.  William,  198  N.  Y. 
242  (1910),  it  was  said: 

"This  court  is  now  committed  to  the  doctrine  that  corporations 
organized  for  the  purposes  of  buying,  selling,  leasing,  renting  and 
owning  real  estate,  and  of  erecting  buildings  or  other  structures 
thereon  are  taxable  under  the  Tax  Law  as  it  now  stands.  *  *  * 
From  the  moment  when  the  relator  began  to  use  its  money  to 


42  CORPORATION   TAX    (ART.    9) 

purchase  real  estate  for  the  purposes  of  its  incorporation  it  em- 
ployed its  capital  in  this  state  within  the  purview  of  the  statute." 

Realty  although  unproductive  is  capital  employed. — It  mat- 
ters not  whether  the  capital  stock  of  a  realty  company  be  employed 
in  business.  If  it  be  employed  at  all,  it  is  sufficient.  People  ex  rel. 
Waclarlc  R.  Co.  v.  Williams,  198  K  Y.  54  (1910) ;  rev'g  134  App. 
Div.  83. 

In  People  ex  rel.  Coney  Island  Jockey  Club  v.  Sohmer,  140 
N.  Y.  Supp.  507  (1913),  the  words  "capital"  and  "capital  stock" 
as  well  as  the  words  "employed"  in  reference  to  capital,  are  defined. 
In  that  case  it  was  held  that  a  domestic  corporation  incorporated 
"for  improving  the  breed  of  horses"  and  owning  two  tracts  of  land, 
one  of  which  was  paid  for  out  of  the  capital  stock,  the  other  of 
which  was  paid  for  out  of  profits,  is  subject  to  a  franchise  tax  un- 
der section  182  of  the  Tax  Law,  although  it  claimed  it  was  not 
exercising  its  franchise  under  its  certificate  of  incorporation,  and 
that  its  capital  was  simply  lying  dormant.  When  the  company 
used  its  capital  to  purchase  real  estate,  it  was  employing  its 
capital  in  the  state.  "Using"  is  employing.  Citing  People  ex 
rel.  Fifth  Ave.  Bldg.  Co.  v.  Williams,  198  1ST.  Y.  238  (1910) ; 
People  ex  rel.  Vandervoort  v.  Glynn,  194  N.  Y.  387;  People  ex 
rel.  Uth  St.  Realty  Co.  v.  Kelsey,  110  App.  Div.  797  (1909). 
The  fact  that  one  of  the  two  tracts  of  land  was  paid  for  out  of 
the  capital  stock  and  the  other  out  of  profits  is  immaterial.  Both 
are  capital.  The  words  "capital  stock"  and  "capital"  are  prac- 
tically equivalent  within  the  meaning  of  the  provisions  of  the 
franchise  tax.  By  "capital  stock"  is  meant  the  value  of  the  net 
assets,  and  since  surplus  forms  part  of  the  capital,  it  must  be 
taken  into  account  in  valuing  the  capital  stock.  People  ex  rel. 
Commercial  Cable  Co.  v.  Morgan,  178  N.  Y.  433  (1904) ;  Peo- 
ple ex  rel.  Wiebusch  &  Hilger  Co.  v.  Roberts,  154  N.  Y.  101 
(1897). 

Real  estate;  property  without  the  state. — Eeal  estate  em- 
ployed in  business  within  the  state  may  be  taxed,  even  though 
it  results  in  double  taxation.  This  does  not  make  the  law  uncon- 


ANNUAL   FRANCHISE   TAX   ON    CAPITAL   STOCK  43 

stitutional.  People  ex  rel.  Postal  Tel.  Co.  v.  Campbell,  70  Hun, 
507  (1893).  If  the  real  estate  is  not  within  the  state,  the  capital 
so  invested  is  not  taxable  here.  People  ex  rel.  American  Surety 
Co.  v.  Campbell  74  Hun,  101  (1893);  affd  143  K  Y.  625. 
The  same  rule  applies  to  United  States  bonds  deposited  in  other 
states.  Ibid. 

Nor  will  freight  cars  permanently  outside  of  the  state  be  taxed 
as  capital  employed  within  the  state.  People  v.  Compbell  and 
Roberts,  88  Hun,  545  (1895). 

Outstanding  accounts  of  domestic  corporations. — Outstand- 
ing accounts,  representing  property  of  a  domestic  corporation  in- 
vested outside  of  the  state,  which  has  never  come  within  the 
state,  have  been  held  to  be  capital  employed  without  the  state. 
People  ex  rel.  Rees  v.  Miller,  90  App.  Div.  591  (1904).  This  de- 
cision has  been  modified,  but  does  not  seem  to  have  been  over- 
ruled, on  the  point  cited  in  People  ex  rel.  Williams  v.  Sohmer, 
151  App.  Div.  764  (1912). 

Joint  stock  company  taxable. — Joint  stock  companies  were 
held  liable  to  taxation  under  the  law  as  amended.  The  insertion 
of  words  "or  organized"  in  Chapter  361  of  the  Laws  of  1881  in- 
dicated that  the  legislature  did  not  intend  to  confine  the  third 
section  of  Chapter  542  of  the  Laws  of  1880  to  bodies  which 
were  strictly  incorporated.  People  ex  rel.  Plait  v.  Wemple,  117 
N.  Y.  136;  afFg  52  Hun,  434  (1889).  The  legislature  amended 
this  section  by  making  it  applicable  to  a  "corporation,  joint  stock 
company  or  association,  incorporated,  organized  or  formed."  (Chap. 
353,  L.  1889,  now  included  in  sec.  182  Tax  Law.) 

Amount  of  franchise  tax  payable  by  corporations  with  shares 
without  nominal  or  par  value  under  chap.  351,  L.  1912. — The  fran- 
chise tax  upon  any  corporation  issuing  such  shares  of  stock  payable 
under  sec.  182  of  the  tax  law  shall  be  determined  by  taking  as  a 
base  such  portion  of  net  assets  of  the  corporation  as  its  gross  assets 
employed  in  any  business  within  this  state,  bear  to  its  entire  gross  as- 
sets wherever  employed  in  business,  and  the  rate  of  such  franchise  tax 
sliall  be  fixed  in  the  manner  provided  in  said  sec.  182  of  the  tax  law. 
For  this  purpose  the  rate  of  dividends  shall  be  computed  by  dividing 


44  CORPORATION   TAX    (ART.   9) 


the  total  amount  of  dividends  which  have  been  paid  during  the  year 
by  the  amount  of  net  assets  of  the  corporation  upon  the  first  day  of 
such  year.  (Stock  Corp.  L.,  sec.  21  am'd  ch.  501,  L.  1917,  in  accord- 
ance with  the  recommendation  of  the  Taao  Commission  of  1915.) 

NOTE. — After  ascertaining  the  total  amount  taxable  as  above,  if 
there  are  several  classes  of  stock,  the  preferred  having  preference  in 
payment  of  principal,  it  would  appear  that  the  value  of  the  common 
may  be  determined  by  deducting  the  proportionate  share  of  the  par 
value  of  the  preferred  from  such  amount. 


CHAPTER  VI. 

PRINCIPLES  DETERMINING  TAXATION  OF  FOREIGN  CORPORATIONS 
UNDER  SECTIONS  181  AND  182  OF  THE  TAX  LAW. 

The  same  principles  of  taxation  apply  to  domestic  and  for- 
eign corporations  in  determining  the  amount  of  capital  stock  em- 
ployed within  the  state  for  the  purposes  of  the  annual  franchise 
tax.  If  there  is  no  property  or  business  done  in  the  state  there 
is  no  basis  for  the  tax. 

Requirements  for  taxation  of  foreign  corporation. — Two  con- 
curring conditions  are  necessary  for  the  taxation  of  foreign  cor- 
porations under  sections  181  and  182  of  the  Tax  Law : 

1.  Foreign  corporations  shall  be  doing  business  in  the  state; 

2.  Its  capital,  or  some  part  thereof,  shall  be  "employed  within 
this  state." 

People  ex  rel.  Chicago  June.  Ry.  Co.  v.  Roberts,  154  N.  Y. 
1  (1897) ;  rev'g  90  Hun,  474. 

See  also  People  ex  rel.  Harlin  &  H.  Co.  v.  Campbell,  139 
N.  Y.  68  (1893). 

Interstate  commerce. — A  railroad  incorporated  in  another 
state,  having  terminal  facilities  and  real  estate  here,  employing 
workmen  and  keeping  money  in  bank  in  this  state,  incidental  to  its 
business,  of  forwarding  and  receiving  passengers  between  New 
York  and  other  states,  is  engaged  in  interstate  commerce  and  not 
taxable  on  its  capital  employed  here.  People  ex  rel.  Pa.  R.  R. 
v.  Wemple,  65  Hun,  252  (1892)  affd  138  1ST.  Y.  1.  But  a  rail- 
road employing  its  capital  in  cab  service,  beginning  and  ending  in 
this  state,  for  which  a  separate  charge  is  made,  is  taxable  thereon, 

45 


46  CORPORATION   TAX    (ART.    9) 

since  it  is  not  a  part  of  the  interstate  commerce  of  a  railroad  com- 
pany. The  tax  is  not  on  the  property  of  the  company,  but  on  its 
privilege  of  exercising  its  corporate  franchises.  People  ex  rel. 
Penn.  R.  R.  v.  Knight,  67  App.  Div.  398  (1901) ;  aff  d  171  N.  Y. 
354  (1902) ;  aff'd  in  192  U.  S.  21  (1904). 

A  more  recent  case,  People  ex  rel.  International  Elevator  Co. 
v.  Roberts,  116  App.  Div.  30  (1906),  intimates  that  the  franchise 
tax  may  be  imposed  on  a  corporation  engaged  in  interstate  com- 
merce, provided  part  of  its  business  is  done  in  the  state. 

Good- will;  United  States  copyrights;  patents. — Good- will  of 
a  foreign  corporation  carrying  on  business  in  this  state  and  no- 
where else  is  subject  to  a  franchise  tax  under  sections  181  and  182 
of  the  Tax  Law.  People  ex  rel.  Johnson  Co.  v.  Roberts,  159  N.  Y. 
70  (1889).  In  the  last  named  case  it  was  held  that  the  copy- 
rights were  not  taxable,  but  a  later  case  overruled  so  much  of  the 
decision  as  was  applicable  to  the  taxation  of  copyrights  and  clearly 
upheld  the  right  of  the  state  to  impose  a  franchise  tax  on  a  cor- 
poration owning  letters  patent  or  copyrights.  People  ex  rel.  U.  8. 
Aluminum  Printing  Co.  v.  Knight,  174  N".  Y.  475  (1903) ;  see, 
also,  People  ex  rel.  Edison  El.  III.  Co.  v.  Wemple,  61  Hun,  53 
(1891). 

Some  of  the  business  corporations  in  the  cases  above  cited  are 
now  taxed  under  Article  9 -a.  of  the  Tax  Law  on  net  income  on  a 
somewhat  different  basis,  but  the  rules  laid  down  in  these  cases  con- 
tinue to  apply  to  corporations  now  taxable  under  Sections  181  an 
182  of  the  Tax  Law. 


'• 


When  Foreign  Corporations  Have  Been  Held  to  Be  Doing 
Business  or  Employing  Capital  Within  the  State. 

Selling  western  mortgages. — A  foreign  corporation  having  an 
office  in  New  York  for  the  sale  of  mortgages  on  western  real 
estate,  depositing  the  proceeds  of  sale  in  New  York,  and  send- 
ing the  funds  to  the  home  office  for  re-investment^  is  doing  business 
within  the  state.  People  ex  rel.  N.  E.  Loan  &  Invest.  Co.  v. 
Roberts,  25  App.  Div.  16  (1898). 


TAXATION  OF  FOREIGN  CORPORATIONS  §§  181,  182       47 

A  foreign  corporation  is  doing  business  when  it  becomes  a 
special  partner  in  a  limited  partnership  within  this  state,  and 
is  liable  to  taxation  on  the  amount  of  its  capital  contributed  to 
the  partnership.  People  ex  rel.  Badische  Anilin  &  Soda  Fabrik 
Co.  v.  Roberts,  152  K  Y.  59  (1897);  O'Brien,  J.,  dissenting. 

When  Foreign  Corporations  Are  Not  Doing  Business  or 
Employing  Capital  in  the  State. 

Foreign  corporation  carrying  on  business  through  brokers. 

— A  foreign  corporation  carrying  on  business  through  brokers 
in  this  state,  consigning  goods  to  them  for  sale  at  a  price  fixed 
by  it,  or  in  fulfillment  of  orders  approved  by  it,  was  held  not  to 
be  carrying  on  business  here,  although  the  proceeds  of  sale  were 
deposited  in  bank  in  New  York  to  its  credit.  People  ex  rel. 
Southern  Cotton  Oil  Co.  v.  Roberts,  25  App.  Div.  13  (1898). 
The  court  said  in  this  case  that  "the  goods  consigned  to  commis- 
sion merchants  were  in  their  possession  and  control,  and  their  dis- 
position in  accordance  with  the  directions  of  the  relator  was  a  part 
of  their  business,  not  the  business  of  the  relator.  A  commission 
merchant  has  ordinarily  a  right  to  sell  in  his  own  name  (Story's 
Agency,  Sees.  33  and  34).  As  to  the  public  he  is  the  dealer." 

In  another  case,  People  ex  rel.  Washington  Mills  v.  Roberts, 
8  App.  Div.  201  (1896),  it  was  held  that  where  a  foreign  cor- 
poration solicited  orders  through  agents  in  the  state,  which  were 
filled  from  the  factory  in  the  home  office,  and  leased  offices,  kept 
samples  and  a  bank  account  in  New  York  State,  it  was  not  tax- 
able here.  This  case  was  followed  in  People  ex  rel.  H.  P.  Smith 
v.  Roberts,  27  App.  Div.  455  (1898).  The  court  held  in  these 
cases  that  the  business  of  soliciting  orders  in  the  state  was  not  tax- 
able, and  that  the  bank  account  and  samples  were  not  taxable,  but 
merely  incidental  to  the  business  of  soliciting  orders. 

Newspaper  advertising  agency  forwarding  printed  matter. 
— A  case  on  the  same  lines  is  that  of  People  ex  rel.  A.  M.  Kellogg 
Newspaper  Co.  v.  Roberts,  30  App.  Div.  150  (1898).  This  was  a 
foreign  corporation  with  a  home  office  at  Chicago,  Illinois,  which 


48  CORPORATION    TAX    (ART.    9) 

was  engaged  in  forwarding  printed  matter  from  its  home  office  to 
be  used  by  New  York  newspapers,  and  had  an  office  in  New  York 
for  soliciting  advertisements.  These  advertisements  were  forwarded 
to  Chicago  and  the  collections  made  thereon  were  deposited  in  a 
New  York  bank  and  credited  to  the  Chicago  office.  It  was  held  not 
to  be  capital  employed  in  the  state. 

An  earlier  and  frequently  cited  case  in  which  the  right  of  a 
foreign  corporation  to  maintain  an  office  and  salaried  agent  here, 
was  maintained,  was  People  ex  rel.  Harlin  &  Hollingsworth  Co.  v. 
Campbell  139  N.  Y.  68  (1893).  The  business  of  this  corporation 
was  manufacturing  and  equipping  railway  and  steamship  cars  in 
the  State  of  Delaware,  where  all  its  business  was  transacted  and 
manufacturing  done.  While  the  maintenance  of  a  New  York  office 
might  be  doing  business,  there  was  no  capital  employed  by  the 
corporation  which  would  subject  it  to  a  tax  under  the  statute. 

Telephone  companies  leasing  telephones  to  local  companies. 

—In  People  v.  American  Bell  Telephone  Co.,  117  N.  Y.  241 
(1889),  reversing  50  Hun,  114,  it  was  held  that  where  a  Massa- 
chusetts company  leased  to  certain  corporations  in  this  state,  under 
contracts  executed  in  Boston,  telephones  which  were  delivered  to 
lessees  in  that  city,  at  its  office,  the  local  companies  supplying  poles, 
wires,  plant,  agents,  etc.,  but  the  lessor  company  supplying  much 
of  the  capital  of  the  local  companies,  that  the  lessor  company  was 
not  carrying  on  business  in  this  state  within  the  act. 

Cases  which  seem  to  be  overruled  by  the  amendment  of 
1906. — Under  the  law  prior  to  1906  a  foreign  corporation  invest- 
ing its  capital  in  the  stock  of  another  corporation,  domestic  or  for- 
eign, was  not  engaged  in  business  in  the  state,  even  if  the  cor- 
poration in  whose  stock  its  capital  was  invested  was  so  engaged  in 
business.  People  ex  rel.  Chicago  June.  Ey.  Co.  v.  Roberts,  154 
N.  Y.  1  (1897) ;  People  ex  rel.  Edison  Co.  v.  Kelsey,  101  App.  Div. 
205  (1905) ;  People  v.  American  Bell  Telephone  Company,  117 
N.  Y.  241  (1889). 

The  present  statute  expressly  declares  that  "for  the  purposes  of 
taxation  the  capital  of  a  corporation  invested  in  the  stock  of  an- 


TAXATION  OF  FOREIGN  CORPORATIONS  §§  181,  182      49 

other  corporation  shall  be  deemed  to  be  assets  located  where  the 
physical  property  represented  by  such  stock  is  located." 

This  also  changes  the  rule  in  the  case  of  a  domestic  corpora- 
tion investing  its  capital  in  the  stock  of  another  corporation, 
domestic  or  foreign.  Such  a  corporation  investing  its  capital  in 
the  stock  of  a  foreign  corporation  was  formerly  not  taxable,  but  if 
its  capital  was  invested  in  the  stock  of  a  domestic  corporation  it 
was  held  to  be  taxable.  People  ex  rel.  Edison  Electric  Light  Com- 
pany v.  Campbell,  138  1ST.  Y.  543  (1893) ;  same  v.  same,  148  K  Y. 
690  (1896).  Under  the  present  law  such  corporations  are  taxable 
only  if  the  physical  property  represented  by  such  stock  is  located  in 
the  state. 


CHAPTER  VII. 

ANNUAL  TAX  ON  TRANSPORTATION,  TRANSMISSION,  HEAT,  LIGHT, 
POWER  AND  WATER  COMPANIES  BASED  ON  GROSS  EARNINGS. 

The  law  imposing  an  additional  franchise  tax  on  transportation 
and  other  companies  (Chapter  361,  Laws  of  1881)  was  amended 
in  1894  (Chapter  562)  by  excluding  interstate  earnings.  Prior  to 
this  amendment  there  had  been  a  decision  on  the  state's  right  to 
tax  gross  earnings  derived  from  the  carriage  of  interstate  passen- 
gers. People  ex  rel.  Dunkirk,  etc.,  Ry.  Co.  v.  Campbell,  74  Hun, 
210  (1893).  This  decision  of  the  Supreme  Court  appears  to  be  in 
line  with  Maine  v.  Grand  Trunk  Ry.,  142  U.  S.  217,  in  which  the 
Supreme  Court  held  that  the  tax  was  on  the  franchise  and  not  on 
interstate  commerce.  The  amendment  of  the  law  obviated  this 
question. 

The  present  law,  section  184  Tax  Law,  reads  as  follows: 

Additional  franchise  tax  on  transportation  and  transmission 
corporations  and  associations. — Every  corporation  and  joint-stock 
association  formed  for  steam  surface  railroad,  canal,  steamboat,  ferry, 
except  a  ferry  company  operating  between  any  of  the  boroughs  of  the 
City  of  New  York  under  a  lease  granted  by  the  city,  express,  navi- 
gation, pipe  line,  transfer,  baggage  express,  telegraph,  telephone,  pal- 
ace car  or  sleeping  car  purposes,  and  every  other  transportation  cor- 
poration not  liable  to  taxation  under  section  one  hundred  and  eighty- 
five  or  one  hundred  and  eighty-six  of  this  chapter,  shall  pay  for  the 
privilege  of  exercising  its  corporate  franchises  or  carrying  on  its 
business  in  such  corporate  or  organized  capacity  in  this  state,  an 
annual  excise  tax  or  license  fee  which  shall  be  equal  to  five-tenths  of 
one  per  centum  upon  its  gross  earnings  within  this  state,  which  shall 
include  its  gross  earnings  from  its  transportation  or  transmission 
business  originating  and  terminating  within  this  state,  but  shall  not 
include  earnings  derived  from  business  of  an  interstate  character. 
(Former  sec.  184,  Tax  Law,  as  amended  by  ch.  734,  L.  1907,  ch.  334, 
L.  1914.) 

50 


TAX   ON    GROSS    EARNINGS    §§    184,    185,    186  51 

Source:  Ch.  361,  L.  1881,  sees.  6  and  11,  as  amended  by  ch.  562,  L. 
1894,  without  change  of  substance. 

Recent  Amendments. — -The  amendment  of  1914  exempted  ferry  com- 
panies operating  between  the  boroughs  of  New  York  City  from  the 
additional  franchise  tax. 

Additional  tax  in  nature  of  license  fee. — The  additional  fran- 
chise tax  is  to  be  considered  in  the  nature  of  a  license  fee.  In 
People  ex  rel.  Cornell  Steamboat  Co.  v.  Sohmer,  206  N.  Y.  651 
(1912),  Cullen,  C.  J.,  said:  "I  doubt  whether  in  the  true  sense  of 
the  term  it  is  to  be  considered  a  tax,  but  should  not  rather  be 
deemed  a  compensation  exacted  for  the  privilege  which  the  state 
might  refuse."  This  tax  is  imposed  on  transportation  corporations 
as  distinguished  from  general  corporations. 

Constitutionality  of  tax  on  gross  receipts  of  transportation 
or  transmission  companies. — It  is  to  be  observed  that  the  above 
tax  is  a  license  tax  on  earnings  within  the  state.  In  Osborne  v. 
Mobile,  16  Wall.  479  (1872),  the  United  States  Supreme  Court 
has  upheld  the  right  of  a  state  or  municipality  to  impose  a 
license  tax.  It  must,  however,  be  for  the  transacting  of  business 
within  the  state.  Such  business  is  intra-state  and  not  inter-state 
commerce.  Pacific  Express  Co.  v.  Seibert,  142  U.  S.  339  (1892) ; 
Postal  Telegraph  Co.  v.  Charleston,  153  U.  S.  692  (1894).  A 
state  tax  on  gross  freight  receipts  has  been  upheld,  although  partly 
derived  from  interstate  business.  State  Tax  on  railway  gross  re- 
ceipts (Reading  R.  R.  v.  Pa.),  15  Wall.  284  (1872). 

On  the  other  hand  it  has  been  held  by  the  New  York  Court 
of  Appeals  that  a  corporation  organized  under  the  General  Kail- 
road  Law  of  New  York,  engaged  in  the  transportation  of  grain 
from  ports  outside  of  the  state  to  ports  in  the  state,  and  vice  versa, 
owning  a  grain  elevator,  warehouse  and  short  railroad  track  used 
in  its  business,  cannot  be  taxed  on  its  gross  receipts  derived  from 
the  storage  and  handling  of  interstate  trade,  because  under  section 
184  of  the  Tax  Law  it  is  in  no  event  to  "include  earnings  derived 
from  business  of  an  interstate  character."  People  ex  rel.  C.  T.  R. 
Co.  v.  Miller,  178  K  Y.  194  (1904),  reversing  84  App.  Div.  174, 
Cullen,  Vann  and  Martin,  JJ.,  dissenting. 


52  CORPORATION   TAX    (ART.    9) 

United  States  mail  carriers  not  taxable  if  they  carry  inter- 
state mail. — Gross  earnings  of  a  railroad  company  derived  from 
carrying  United  States  mail  are  not  taxable  where  the  mail  car- 
ried includes  not  only  domestic  but  also  interstate  and  foreign 
letters  and  packages,  and  it  is  impossible  to  ascertain  the  pro- 
portion of  mail  which  originates  and  terminates  in  the  state.  Peo- 
ple ex  rel  N.  Y.  Cent.  &  Hud.  Eiv.  E.  E.  v.  Morgan,  168  N.  Y.  1 
(1901). 

Meaning  of  "gross  earnings"  in  this  section. — The  term 
"gross  earnings  from  its  transportation  or  transmission  business" 
covers  all  receipts  of  a  corporation  specified  in  section  184  growing 
out  of  employment  of  its  capital,  whether  employed  in  the  trans- 
portation or  transmission  business  or  othenvise.  People  ex  rel. 
N.  Y.  Cent.  &  Hud.  E.  E.  v.  Roberts,  32  App.  Div.  113  (1898). 

Section  185  of  the  present  Tax  Law,  imposing  a  franchise  tax 
on  elevated  railroads  or  surface  roads  not  operated  by  steam,  reads 
as  follows: 

Franchise  tax  on  elevated  railroads  or  surface  railroads  not 
operated  by  steam — Every  corporation,  joint-stock  company  or  asso- 
ciation owning  or  operating  any  elevated  railroad  or  surface  railroad 
not  operated  by  steam  shall  pay  to  the  state  for  the  privilege  of 
exercising  its  corporate  franchise  or  carrying  on  its  business  in  such 
corporate  or  organized  capacity  within  this  state,  an  annual  tax  which 
shall  be  one  per  centum  upon  its  gross  earnings  from  all  sources 
within  this  state  and  three  per  centum  upon  the  amount  of  dividends 
declared  or  paid  in  excess  of  four  per  centum  upon  the  actual  amount 
of  paid-up  capital  employed  by  such  corporation,  joint-stock  company 
or  association.  Any  such  railroad  corporation  whose  property  is  leased 
to  another  railroad  corporation  shall  only  be  required  under  this  sec- 
tion to  pay  a  tax  of  three  per  centum  upon  the  dividends  declared  and 
paid  in  excess  of  four  per  centum  upon  the  amount  of  its  capital  stock, 
except  that  where  the  property  leased  is  operated  by  a  receiver  and 
the  gross  earnings  are  not  included  in  the  gross  earnings  of  the  lessee 
for  the  purpose  of  taxation  under  this  section,  then  such  receiver  shall 
be  required  to  pay  the  tax  upon  gross  earnings  as  hereinbefore  pro- 
vided. (Former  sec.  185,  Tax  Law,  as  amended  by  ch.  474,  L.  1906, 
ch.  710,  L.  1917.) 


TAX   ON   GROSS   EARNINGS    §§    184,    185,    186  53 

Recent  Amendments. — The  amendment  of  1917  added  the  exception 
as  to  property  leased  and  operated  by  a  receiver. 

Corporations  operating  elevated  railroads  or  surface  railroads 
not  operated  by  steam,  which  formerly  paid  a  tax  on  capital  stock 
as  well  as  on  gross  earnings  are  exempted  from  the  payment  of  the 
former  tax  by  section  183,  Tax  Law. 

Under  section  35  of  the  Rapid  Transit  Act  (Chapter  616,  Laws 
of  1900),  a  corporation  operating  a  subway  is  exempt  from  tax- 
ation on  its  rolling  stock  and  equipment  but  not  on  its  real  estate 
used  in  connection  with  the  road.  It  was  held  in  People  ex  rel. 
Interborough  Rapid  Transit  Company  v.  Williams,  200  N.  Y.  93 
(1910),  that  while  this  exemption  relieved  the  company  from  tax- 
ation on  the  interest  acquired  and  the  property  used  in  carrying  out 
the  contracts  for  the  equipment  and  operation  of  the  subway  road, 
it  did  not  exempt  the  subway  from  the  payment  of  any  franchise 
tax  whatever.  The  wording  of  section  185  whereby  any  "elevated 
or  surface  railroad"  was  made  subject  to  a  tax  upon  its  gross  "in- 
come from  all  sources,"  was  held  not  broad  enough  to  cover  the 
earnings  from  the  subway  operated  by  the  elevated  road,  although 
the  subway  was  one  of  the  sources  of  income  of  the  elevated  road. 
It  was  intimated  by  the  court  that  the  subway  might  be  taxable 
under  sections  182  and  184,  and  in  the  case  of  People  v.  Solimer, 
207  N.  Y.  272,  decided  in  1913,  it  was  held  that  the  exemption 
under  183,  of  corporations  operating  elevated  railroads  or  surface 
railroads  not  operated  by  steam,  and  taxable  under  185,  did  not 
apply  to  subways,  but  that  the  latter  are  taxable  under  sections  182 
and  184. 

Sec.  186.     Franchise  tax  on  water  works  companies,  gas  com- 
panies, electric  or  steam  heating,  lighting  and  power  companies. — 

Every  corporation,  joint-stock  company  or  association  formed  for  sup- 
plying water  or  gas,  or  for  electric  or  steam  heating,  lighting  or 
power  purposes,  shall  pay  to  the  state  for  the  privilege  of  exercising 
its  corporate  franchises  or  carrying  on  its  business  in  such  corpo- 
rate or  organized  capacity  in  this  state,  an  annual  tax  which  shall 
be  five-tenths  of  one  per  centum  upon  its  gross  earnings  from  all 
sources  within  this  state,  and  three  per  centum  upon  the  amount  of 
dividends  declared  or  paid  in  excess  of  four  per  centum  upon  the 


54  CORPORATION   TAX    (ART.    9) 

actual  amount  of  paid-up  capital  employed  add:  in  this  state  by  such 
corporation,  joint-stock  company  or  association  add:  which  amount  of 
capital  employed  in  this  state  shall  be  found  by  dividing  the  gross 
receipts  from  all  sales  made  in  this  state,  by  the  gross  sales  wherever 
made  and  multiplying  the  aggregate  paid  in  capital  stock  by  the 
percentage  so  found.  The  term  "gross  earnings"  as  used  in  this  sec- 
tion means  all  receipts  from  the  employment  of  capital  without  any 
deduction.  (Present  <md  former  sec.  186,  Tax  Law,  as  amended  by 
ch.  734,  L.  1907,  and  ch.  548  L.  1919.) 

Recent   Amendments. — The   amendment   of    1919    provides    for    the 
method  of  finding  the  amount  of  capital  employed  in  the  state. 

These  companies  which  formerly  paid  a  tax  on  capital  stock 
under  Chapter  542,  Laws  of  1880,  are  exempted  from  paying  a 
tax  on  capital  stock  under  section  183,  Tax  Law. 

The  amendment  of  1907  to  section  186  defined  the  term  "gross 
earnings"  and  provided  for  taxing  "gross  earnings  from  all 
sources,"  adding  the  words  that  it  meant  "all  receipts  from  the  em- 
ployment of  capital  without  any  deduction."  In  People  ex  rel. 
Westchester  L.  Co.  v.  Gaus,  199  N.  Y.  147,  the  court  refused  to 
place  an  interpretation  on  this  amendment  that  would  permit 
any  deduction  for  the  cost  of  raw  material  converted  into  gas  and 
electric  current  for  the  replacement  of  capital,  which  the  relator 
in  that  case  held  was  not  an  employment  of  capital.  This  case 
was  followed  in  People  ex  rel.  Genesee  Light  &  Power  Co.  v. 
tiohmer,  162  App.  Div.  207,  affd  212  N.  Y.  598,  where  no  deduc- 
tion was  allowed  in  the  case  of  an  electric  company  which  bought 
some  of  its  current,  later  resold  by  it,  from  another  company.  The 
relator  then  sought  to  have  the  section  declared  unconstitutional 
but  the  court  held  in  People  ex  rel.  Genesee  Light  &  Power  Co.  v. 
Saxe  (1917),  179  App.  Div.  487,  aff'd  223  N.  Y.  690,  that  there 
was  no  unfair  discrimination,  as  the  law  applied  equally  to  all 
corporations  of  the  same  class. 

The  amendment  of  1907  to  section  186  probably  grew  out  of  the 
decision  in  People  ex  rel.  Brooklyn-  Union  Gas  Co.  v.  Morgan,  114 
App.  Div.  266  (1906),  which  held  that  the  value  of  certain  in- 
vestments in  raw  materials,  such  as  coal  and  oil  used  in  making 


TAX   ON   GROSS   EARNINGS   §§    184,    185,    186  55 

gas  by  a  gas  company,  should  be  deducted  before  computing  the 
tax;  that,  otherwise,  the  tax  would  be  on  gross  receipts  and  not 
on  gross  earnings.  The  present  statute  obviates  the  necessity  of 
any  such  distinction. 


CHAPTER  VIII. 

ANNUAL  TAX  ON  INSURANCE  COMPANIES,  BASED  ON  GROSS 

PREMIUMS. 

Premiums  received  on  business  done  in  the  state  defined.— 
The  tax  is  computed  on  the  basis  of  premiums  received  on  business 
done  at  any  time  in  the  state  and  is  for  the  privilege  enjoyed  and 
not  on  the  property  in  the  state  in  the  case  of  a  foreign  fire  insur- 
ance company.  People  ex  rj&l.  Conn.  Mutual  Life  Ins.  Co.  v.  Kelsey, 
116  App.  Div.  97  (1906),  affd  188  N.  Y.  541. 

Franchise  tax  on  insurance  corporations. — A.n  annual  state  tax 
for  the  privilege  of  exercising  corporate  franchises  or  for  carrying  on 
business  in  their  corporate  or  organized  capacity  within  this  state 
equal  to  one  per  centum  on  the  excess  of  the  gross  amount  of  pre- 
miums charged,  over  the  deductions  hereinafter  provided,  during  the 
preceding  calendar  year  for  business  done  at  any  time  in  this  state, 
shall  be  paid  annually  into  the  treasury  of  the  state  on  or  before  the 
first  day  of  June.  The  gross  amount  of  premiums  subject  to  deduc- 
tion shall  include  all  premiums  charged  during  such  preceding  calen- 
dar year  on  all  policies,  certificates,  renewals,  policies  subsequently 
cancelled,  insurance  and  reinsurance  executed,  issued  or  delivered  dur- 
ing such  preceding  and  all  prior  calendar  years.  The  excess  of  the 
gross  amount  of  premiums  taxable  shall  be  found  by  deducting  from 
the  total  amount  of  premiums  charged,  including  reinsurance  pre- 
miums charged,  for  business  done  in  this  state  under  all  such  policies, 
certificates,  renewals,  policies  subsequently  cancelled,  insurance  and 
reinsurance  executed,  issued  or  delivered  during  such  preceding  and 
all  prior  calendar  years,  the  amount  of  premiums  paid  for  reinsurance 
in  corporations  taxed  under  this  section,  unearned  premiums  returned 
on  cancellation  of  policies,  premiums  on  policies  not  taken  and  all 
the  so-called  dividends  made  to  policy  holders,  but  not  including  de- 
ferred dividends  paid  in  cash  to  policy  holders  on  maturing  policies; 
provided,  however,  that  in  the  case  of  life  insurance  companies  the 

56 


TAI   ON   GROSS   PREMIUMS  57 

word  "charged"  wherever  it  appears  shall  be  understood  to  mean  the 
amount  of  premiums  received.  Such  taoo  shall  be  paid  by  the  ooil- 
poration  which  charges  the  premium  provided  it  is  one  of  the  cor- 
porations hereinafter  described: 

1.  Every    domestic    insurance    corporation,    incorporated,    organized 
or  formed  under,  by,  or  pursuant  to  a  general  or  special  law; 

2.  Every  insurance  corporation,  incorporated,  organized  or  formed 
under,  by,  or  pursuant  to  the  laws  of  any  other  state  of  the  United 
States,  and  doing  business  in  this  state,  except  a  corporation  doing  a 
fire  insurance  business  or  a  marine  insurance  business; 

3.  Every  insurance  corporation,  incorporated,  organized  or  formed 
under,  by,  or  pursuant  to  the  laws  of  any  state  without  the  United 
States,  or   of  any  foreign  country,  except   such  a  corporation   doing 
a  life,  health  or  casualty  insurance  business,  and  doing  business  in  this 
state;  but  the  tax  on  gross  premiums  of  a  corporation  so  incorporated, 
organized  or  formed  and  doing  a  fire  or  marine  insurance  business 
within  the  state  shall  be  equal  to  five-tenths  of  one  per  centum.     This 
section  does  not  apply  to  a  fraternal  beneficiary  society,  order  or  as- 
sociation, a  corporation  for  the  insurance  of  domestic  animals,  a  town 
or  county  co-operative  insurance  corporation,  nor  to  any  corporation 
subject  to  the  supervision  of  or  required  by  or  in  pursuance  of  law 
to  report  to  the  superintendent  of  banks;  but  this  section  does  apply 
to  an  individual,  or  partnership,  or  association  of  underwriters  known 
as  Lloyds  in  so  far  as  corporations  doing  the  same  kind  of  insurance 
business  are  subject  to  its  provisions.    The  taxes  imposed  by  this  sec- 
tion shall  be  in  addition  to  all  other  fees,  licenses  or  taxes  imposed  by 
this  or  any  other  law,  except  that  in  assessing  taxes  under  the  recipro- 
cal provision  of  section  thirty- three  of  the  insurance  law,  credit  shall 
be  allowed  for  any  taxes  paid  under  this  section.    The  term  "insurance 
corporations"  as  used  in  this  article  shall  include  a  corporation,  asso- 
ciation, joint-stock  company  or  association,  person,  society,  aggrega- 
tion or  partnership  by  whatever  name  known  doing  an  insurance  busi- 
ness in  this  state.     (Present  and  former  sec.  187,  Tax  Law,  as  amended 
by  ch.  494,  L.  1897,  ch.  118,  L.  1901,  ch.  94,  L    1905,  ch.  796,  L.  1917, 
and  ch.  625,  L.  1919.) 

Source:  Sec.  5,  ch.  361,  L.  1881,  as  amended  by  ch.  425,  L.  1895; 
sec.  1,  ch.  679,  L.  1886,  as  amended  by  ch.  418,  L.  1895. 

Recent  Amendment. — The  amendment  of  1919  provides  the  method 
for  finding  the  excess  of  the  gross  amount  of  premiums  taxable. 


58  CORPORATION   TAX    (ART.    9) 

No  deductions  for  the  two  per  cent,  annual  tax  payable  to 
superintendent  of  insurance. — Under  subdivision  2,  section  187, 
as  amended  by  Chapter  118?  Laws  of  1901,  the  tax  imposed  is  in 
addition  to  all  other  fees,  licenses  and  taxes,  and  a  foreign  marine 
insurance  company  cannot  deduct  the  annual  tax  of  two  per  cent, 
payable  to  the  superintendent  of  insurance  under  section  34,  In- 
surance Law.  People  v.  Thames  &  Mersey  Marine  Ins.  Co.,  176 
X.  Y.  531  (1903).  Section  34  reads  as  follows: 

Taxation  of  foreign  corporations. — "The  capital  of  an  insurance 
corporation  incorporated  under  the  laws  of  any  state  or  country  out- 
side of  the  United  States,  to  the  extent  employed  in  the  transaction  of 
business  in  this  state,  and  as  determined  and  certified  as  prescribed 
by  section  twenty-seven  of  this  chapter,  shall  be  subject  to  taxation  the 
same  as  the  capital  of  a  like  domestic  insurance  corporation,  to  be 
levied,  assessed  and  collected,  as  prescribed  by  law,  at  such  place  in 
the  state  as  it  shall  have  its  principal  office.  Upon  satisfactory  proof 
to  the  superintendent  of  insurance  that  any  foreign  insurance  corpora- 
tion has  neglected  or  refused  to  pay  any  tax  levied  and  assessed  under 
the  laws  of  this  state,  he  shall  revoke  any  certificate  of  authority 
granted  by  him  to  such  corporation  to  do  business  in  this  state,  and 
it  shall  thereafter  be  precluded  from  doing  business  herein.  Every 
health,  or  casualty  insurance  corporation  incorporated  by  or  organized 
under  the  laws  of  any  government  outside  of  the  United  States  en- 
gaged in  the  transaction  of  the  business  of  health  or  casualty  insurance 
in  this  state,  under  a  certificate  of  authority  from  the  superintendent 
of  insurance  shall  annually  on  or  before  the  first  day  of  March,  pay  to 
the  superintendent  of  insurance  a  tax  of  two  per  centum  on  all  pre- 
miums received  in  cash  or  otherwise  by  its  attorneys  or  agents  in 
this  state  during  the  year  ending  on  the  preceding  thirty-first  day  of 
December  for  business  done  at  any  time  in  this  state  on  risks  resident 
therein.  Every  life  insurance  corporation  incorporated  by  or  or- 
ganized under  the  laws  of  any  government  outside  of  the  United  States 
engaged  in  the  transaction  of  the  business  of  life  insurance  in  this 
state,  under  a  certificate  of  authority  from  the  superintendent  of  in- 
surance shall  annually,  on  or  before  the  first  day  of  March,  pay  to  the 
superintendent  of  insurance  a  tax  of  one  per  centum  on  all  premiums 
received  in  cash  or  otherwise  by  its  attorneys  or  agents  in  this  state 
during  the  year  ending  on  the  preceding  thirty-first  day  of  December, 
for  business  done  at  any  time  in  this  state  on  risks  resident  therein. 
If  any  such  corporation  shall  neglect  or  refuse  to  pay  such  tax, 
the  superintendent  shall  collect  the  same  out  of  the  interest  on  the 


TAX   ON   GROSS   PREMIUMS  59 

stocks  or  securities  deposited  in  the  insurance  department.  The  agent 
of  every  corporation,  association  or  individual  not  incorporated  by  the 
laws  of  this  state  to  effect  insurance  against  marine  risks  shall  an- 
nually, on  or  before  the  first  day  of  February,  pay  to  the  superinten- 
dent of  insurance  a  tax  of  two  per  centum  upon  the  amount  of  all 
premiums  upon  insurance  against  marine  risks  which  have  been  re- 
ceived by  such  agent  or  any  person  for  him  or  have  been  agreed  to  be 
paid  for  any  such  insurance  effected  or  agreed  to  be  effected  or  pro- 
cured by  him,  within  this  state,  for  the  year  ending  the  thirty-first 
day  of  December  preceding.  In  ascertaining  the  amount  of  premiums 
upon  which  said  two  per  centum  tax  is  to  be  levied,  there  shall  be 
deducted  from  the  premiums  aforesaid,  on  account  of  reinsurances, 
such  portion  of  the  premiums  upon  said  reinsurances  as  may  have  been 
paid  to  companies  that  are  subject  to  the  payment  of  the  tax  hereby 
provided  for,  but  no  credit  or  deduction  shall  be  allowed  on  account 
of  such  reinsurances  where  any  part  of  the  risk  insured  against  is 
reinsured  in  a  corporation  authorized  to  effect  insurances  against 
fire,  or  in  the  fire  insurance  branch  of  a  corporation  authorized  to 
effect  insurance  against  both  marine  and  fire  risks."  (Former  sec. 
34,  Ins.  Law,  as  amended  ~by  ch.  725,  L.  1893,  ch.  708,  L.  1904,  oh. 
634,  L.  1910,  and  ch.  766,  L.  1911.) 

Amendment  of  1905. — Chapter  94  of  the  Laws  of  1905  amended 
section  187  of  the  Tax  Law  and  materially  changed  the  method  of 
computing  the  tax  on  insurance  companies.  Prior  to  the  passage 
of  this  law  it  had  been  held  that  a  tax  of  one  per  cent.,  imposed 
under  section  187  of  the  Tax  Law,  on  the  gross  premiums  of 
domestic  insurance  companies  applied  only  to  first  year  premiums 
on  new  policies  and  not  to  renewal  policies.  People  ex  rel.  Provi- 
dent 8.  L.  A.  Society  v.  Miller,  179  N.  Y.  227  (1904) ;  reversing 
88  App.  Div.  218,  Yann  and  Bartlett,  JJ.,  dissenting.  By  the 
amendment  of  1905  a  tax  was  imposed  not  only  on  premiums 
collected  on  new  policies  but  also  on  the  gross  amount  of  premiums 
received  during  the  preceding  calendar  year  on  all  policies,  all  re- 
newal premiums,  insurance  and  re-insurance  executed,  issued  and 
delivered  in  all  years  prior  to  such  preceding  calendar  year.  See 
also  People  ex  rel.  Conn.  Mutual  Life  Ins.  Co.  v.  Kelsey,  116  App. 
Div.  97  (1906). 

A  somewhat  different  question  was  raised  in  People  ex  rel.  Con- 
tinental  Insurance  Co.  v.  Miller,  177  N".  Y.  515  (1904),  in  which 


60  CORPORATION   TAX    (ART.    9) 

the  court  held  that  the  premiums  refunded  to  policy  holders  of  do- 
mestic fire  insurance  companies  are  not  to  be  taxed  under  section 
187,  since  no  business  is  done"  after  the  cancellation  of  the 
policy. 


CHAPTER  IX. 

ANNUAL  FRANCHISE  TAX  ON  TRUST  COMPANIES,  SAVINGS  BANKS, 
INVESTING  COMPANIES  AND  FOREIGN  BANKERS. 

Relieved  from  all  other  taxes. — Trust  companies  were  intended 
to  be  relieved  by  section  188  (former  sec.  187-a),  Tax  Law,  from 
taxation  on  personal  property  for  all  other  purposes  from  the  date 
of  the  passage  of  the  act,  March  21,  1901.  Binghamton  Trust  Co. 
v.  Binghamton,  72  App.  Div.  341  (1902). 

Franchise  tax  on  trust  companies. — Every  trust  company,  incor- 
porated, organized  or  formed  under,  by  or  pursuant  to  a  law  of  this 
state,  and  any  company  authorized  to  do  a  trust  company's  business 
solely  or  in  connection  with  any  other  business,  under  a  general  or 
special  law  of  this  state,  shall  pay  to  the  state  annually  for  the  privi- 
lege of  exercising  its  corporate  franchise  or  carrying  on  its  business 
in  such  corporate  or  organized  capacity,  an  annual  tax  which  shall 
be  equal  to  one  per  centum  on  the  amount  of  its  capital  stock,  surplus 
and  undivided  profits.  (Sec  188,  form&r  sec.  187-a,  Tax  Law,  added 
ly  oh.  132,  L.  1901,  and  amended  ly  oh.  535,  L.  1901.) 

Apportionment  of  tax. — The  basis  of  the  tax  is  the  average 
amount  of  capital,  surplus  and  undivided  profits  during  the  preced- 
ing year.  This  is  more  equitable  to  both  the  trust  company  and 
state  than  if  a  special  date  was  fixed  upon  which  same  should  be 
taken,  for  such  a  date  might  find  the  trust  company  with  either  an 
unusually  large  or  an  unusually  small  amount  of  surplus  and  un- 
divided profits.  If  the  trust  company  has  not  been  doing  business 
during  the  entire  fiscal  year,  the  tax  must  be  apportioned  ac- 
cordingly. People  ex  rel.  Mutual  Trust  Co.  v.  Miller,  177  1ST.  Y. 
51  (1903) ;  see  People  ex  rel.  BTclyn  E.  T.  Co.  v.  Morgan,  57  App. 
Div.  335;  People  ex  rel.  Lincoln  Trust  Co.  v.  Glynn  (1909),  132 
A.  D.  546,  aff'd  198  N.  Y.  501,  holding  also  that  the  method  of 

61 


CORPORATION   TAX    (ART. 

taxing  trust  companies  had  not  been  changed  by  the  1906  amend- 
ment to  section  182,  making  tax  payable  in  advance. 

Sec.  188-a.  Taxation  of  investment  companies. — Every  invest- 
ment company  incorporated,  organized  or  formed  under,  by  or  pursuant 
to  the  banking  law  of  this  state  and  actually  exercising  the  powers  con- 
ferred by  both  subdivisions  two  and  four  of  section  two  hundred  and 
ninety-three  of  the  banking  law,  shall  annually  pay  to  the  state,  for 
the  privilege  of  exercising  its  corporate  franchise  or  carrying  on  its 
business  in  such  corporate  or  organized  capacity,  a  tax  of  an  amount 
equal  to  one  and  one-half  mills  for  every  dollar  face  value  of  its 
capital,  and  in  addition  thereto  a  tax  equal  to  one  per  centum  of  its 
surplus  and  undivided  profits. 

This  section  was  added  by  Chapter  707,  Laws  of  1917,  as  a  substi- 
tute for  the  tax  on  personal  property  (from  which  these  investment 
companies  are  now  exempt  under  Article  I,  Section  4,  Subdivision  14, 
of  the  Tax  Law).  It  applies  only  to  the  so-called  Morris  Plan 
Companies. 

Franchise  tax  on  savings  banks. — Every  savings  bank  incorpo- 
rated, organized  or  formed  under,  by  or  pursuant  to  a  law  of  this 
state,  shall  pay  to  the  state  annually  for  the  privilege  of  exercising 
its  corporate  franchises  or  carrying  on  its  business  in  such  corporate 
or  organized  capacity,  an  annual  tax  which  shall  be  equal  to  one  per 
centum  on  the  par  value  of  its  surplus  and  undivided  earnings. 
(Sec.  189,  Tax  Law,  formerly  sec.  187-b,  added  ly  ch.  117,  L.  1901.) 

Purchase  of  state  bonds;  credit  to  be  given. — Every  corporation, 
company  or  association  required  by  section  one  hundred  and  eighty- 
seven,  one  hundred  and  eighty-eight  or  one  hundred  and  eighty-nine 
of  this  chapter,  to  pay  to  the  state  an  annual  tax  equal  to  a  percentage 
of  its  gross  premiums,  capital  stock,  surplus,  undivided  profits  or  un- 
divided earnings,  or  one  or  more,  for  the  privilege  of  exercising  its 
corporate  franchise  or  carrying  on  its  business  in  such  corporate  or 
organized  capacity,  which  shall  own  any  of  the  bonds  of  the  state  of 
New  York,  shall  have  credited  to  it  annually  to  apply  upon  or  in  lieu 
of  the  payment  of  such  tax  an  amount  equal  to  one  and  one-half  per 
centum  of  the  par  value  of  all  such  bonds  of  the  state,  bearing  inter- 
'  est  at  a  rate  not  exceeding  three  per  centum  per  annum,  owned 
by  such  corporation,  company  or  association,  and  registered  in  its 
name  or  registered  in  the  name  of  a  public  department,  a  public 
officer  or  officers  of  this  state,  or  of  any  state,  or  of  the  United  States, 
in  trust  for  such  corporation,  company  or  association,  on  the  thirtieth 
day  of  June  prior  to  the  date  when  such  tax  shall  become  due  and 


TAX   ON   TRUST   COMPANIES,   BANKS,   ETC.  63 

payable;  provided,  however,  that  there  shall  in  no  case  be  credited  to 
any  such  corporation,  company  or  association  an  amount  in  excess 
of  the  amount  due  to  the  state  from  such  corporation,  company  or 
association  for  taxes  payable  to  the  state  under  this  chapter  for  the 
fiscal  year  for  which  such  credit  is  given;  and  further  provided  that 
any  such  credit  so  allowed  under  this  section  shall  not  bear  interest. 
(Section  190  of  the  Tax  Law,  as  amended  by  ch.  357  of  the  Laws  of 
1913,  and  ch.  794,  L.  1913.)  The  latter  amendment  of  1913  eliminated 
the  former)  so  there  is  no  change  in  the  statute. 

Source:  Former  Sec.  187c,  Tax  Law,  as  added  by  ch.  550,  L.  1907, 
and  am'd  by  ch.  228,  L.  1908. 

Exception. — Bonds  registered  with  an  officer  of  the  Dominion  of 
Canada  in  trust  for  policy  holders  are  not  entitled  to  the  exemption 
from  taxation  provided  for  in  this  section.  (Report  Atty.  Genl. 
[1914],  129.) 

Bonds,  etc.,  forming  surplus  not  to  be  valued  above  par. — 
Bonds  and  securities  in  which  surplus  may  be  invested  are  to 
be  assessed  at  market  value,  if  below  par,  and  at  face  value  if 
above  par.  People  ex  rel.  Bank  for  Savings  v.  Miller,  177  N.  Y. 
461  (1904). 

Tax  upon  foreign  bankers. — Every  foreign  banker  doing  business 
in  this  state,  shall  annually  pay  to  the  treasurer  a  tax  of  five  per 
centum  on  the  amount  of  interest  or  compensation  of  any  kind  earned 
and  collected  by  him  on  money  loaned,  used  or  employed  in  this  state 
by  such  banker. 

The  term,  doing  a  banking  business,  as  used  in  this  section  means 
doing  such  business,  as  a  corporation  may  be  created  to  do  under 
article  three  of  the  banking  law,  or  doing  any  business  which  a  corpo- 
ration is  authorized  by  such  article  to  do.  The  term,  foreign  banker 
doing  a  banking  business  in  this  state,  as  used  in  this  section  in- 
cludes : 

1.  Every  foreign  corporation  doing  a  banking  business  in  this  state, 
except  a  national  bank. 

2.  Every   unincorporated    company,    partnership   or    association,    of 
two  or  more  individuals,  organized  under  or  pursuant  to  the  laws  of 
another  state  or  country,  doing  a  banking  business  in  this  state. 

3.  Every  other  unincorporated  company,  partnership  or  association, 
of  two  or  more  individuals,  doing  a  banking  business  in  this  state,  if 
the  members  thereof,  owning  more  than  a  majority  interest  therein, 


64  CORPORATION   TAX    (ART.    9) 

or  entitled  to  more  than  one-half  'of  the  profits  thereof,  or  who  would, 
if  it  were  dissolved,  be  entitled  to  more  than  one-half  of  the  net  assets 
thereof,  are  not  residents  of  this  state. 

4.  Every  non-resident  of  this  state,  doing  a  banking  business  in  this 
state,  in  his  own  name  and  right  only.  (Section  191,  former  sec.  188, 
Tax  Law,  a-s  amended  by  ch.  500,  L.  1900.) 


CHAPTER  X. 

REPORTS  TO  BE  FILED  WITH  THE  TAX  COMMISSION — STATEMENT 
OF  TAX  AND  PAYMENT  THEREOF  UNDER  ARTICLE  9. 

Section  192  of  the  Tax  Law  provides  for  the  making  of  reports 
by  the  various  classes  of  corporations  hereinbefore  referred  to,  liable 
to  taxation  under  Article  9  of  the  Tax  Law.  It  reads  as  follows : 

Reports  of  corporations. — Corporations  liable  to  pay  a  tax  under 

this  article  shall  report  as  follows: 

1.  COBPORATIONS  PAYING  FRANCHISE  TAX. — Every  corporation,  asso- 
ciation or  joint  stock  company  liable  to  pay  a  tax  under  section  one 
hundred  and  eighty-two  of  this  chapter  shall,  between  first  of  November 
and  fifteenth  of  December  in  each  year,  make  a  written  report  to  the 
tax  commission  of  its  condition  at  the  close  of  its  business  on  October 
thirty-first   preceding,   stating  the   amount  of   its   authorized  capital 
stock,  the  amount  of  stock  paid  in,  and  date  and  rate  per  centum  of 
each  dividend  declared  by  it  during  the  year  ending  with  such  day, 
the  entire  amount  of  the  capital  of  such  corporation,  and  the  capital 
employed  by  it  in  this  state  during  such  year.    Upon  written  applica- 
tion the  state  tax  commission  may,  in  its  discretion,  extend  the  time 
in  which  to  make  the  report,  but  not  beyond  the  fifteenth  day  of 
February  succeeding. 

2.  TRANSPORTATION  AND  TRANSMISSION  CORPORATIONS. — Every  trans- 
portation or  transmission  corporation,  joint  stock  company  or  associa- 
tion liable  to  pay  an  additional  tax  under  section  one  hundred  and 
eighty-four  of  this  chapter,  shall  also,  on  or  before  August  first  in 
each  year,  make  a  written  report  to  the  tax  commission  of  its  condition 
at  the  close  of  its  business  on  June  thirtieth  preceding,  stating  the 
amount  of  its  gross  earnings  from  all  sources  and  the  amount  of  its 
gross  earnings  from  its  transportation  or  transmission  business  origi- 
nating and  terminating  within  this  state. 

3.  ELEVATED  AND  SURFACE  RAILROAD  CORPORATIONS. — Every  corpora- 
tion, joint  stock  company  or  association  liable  to  pay  a  tax  under 
section  one  Htmdred  and  eighty-five  of  this  chapter,  shall,  on  or  before 

65 


CORPORATION   TAX    (ART. 

August  first  of  each  year,  make  a  written  report  to  the  tax  commission 
of  its  condition  at  the  close  of  its  business  on  June  thirtieth  preceding, 
stating  the  amount  of  its  gross  earnings  from  business  done  in  this 
state,  the  amount  of  dividends  of  every  nature  declared  or  paid  during 
the  year  ending  June  thirtieth,  the  authorized  capital  of  the  company 
and  the  amount  of  capital  stock  actually  issued  and  outstanding. 

4.  WATEB  WORKS,   GAS",  ELECTRIC,   STEAM   HEATING,  LIGHTING  AND 
POWER  CORPORATIONS. — Every  corporation,  joint  stock  company  or  as- 
sociation liable  to  pay  a  tax  under  section  one  hundred  and  eighty-six 
of  this  chapter,  shall,  on  or  before  December  first  of  each  year,  make 
a  written  report  to  the  tax  commission  of  its  condition  at  the  close  of 
its  business  on  October  thirty-first  preceding,  stating  the  amount  of  its 
gross  earnings  from  business  done  in  this  state,  the  amount  of  divi- 
dends of  every  nature  declared  or  paid  during  the  year  ending  with 
October  thirty-first,  the  authorized  capital  of  the  company  and  the 
amount  of  capital  stock  actually  issued  and  outstanding. 

5.  INSURANCE  CORPORATIONS. — Every  insurance  corporation  liable  to 
pay  a  tax  under  section  one  hundred  and  eighty-seven  of  this  chapter, 
shall,  on  or  before  March  first  in  each  year,  make  a  written  report  to 
the  tax  commission  of  its  condition  at  the  close  of  its  business  on  De- 
cember thirty-first  preceding,  stating  the  gross  amount  of  all  premiums 
referred  to  in  section  one  hundred  and  eighty-seven  of  this  chapter, 
received  during  the  preceding  calendar  year  on  business  done  thereby 
in  this  state  during  the  year  ending  with  such  day,  and  at  all  times 
prior  thereto,  whether  the  premiums  were  in  money  or  in  the  form  of 
notes,  credits  or  other  substitutes  for  money.     (Subd.  5,  amended  by 
oh.  118,  L.  1901,  and  ch.  94,  L.  1905.) 

6.  FOREIGN  BANKERS. — Every  foreign  banker  liable  to  pay  a  tax  un- 
der section  one  hundred  and  eighty-eight  of  this  chapter  shall,  on  or 
before  February  first  in  each  year,  make  a  written  report  to  the  tax 
commission    of    the   condition    of    his   business    on    December    thirty- 
first  preceding,  stating  the  amount  of  tax  for  which  he  is  liable  under 
this  article,  and  giving  in  detail  the  facts  required  by  the  last  preced- 
ing section  for  the  purpose  of  ascertaining  and  computing  the  same. 

7.  TRUST  COMPANIES. — Every  company  liable  to  pay  a  tax  under 
section  one  hundred  and  eighty-eight  of  this  chapter  shall  on  or  be- 
fore August  first  in  each  year,  make  a  written  report  to  the  tax 
commission  of  its  condition  at  the  close  of  business  on  June  thirtieth 
preceding,   separately    stating   the  amount  of   its  capital   stock,  the 
amount  of  its  surplus,  and  the  amount  of  its  undivided  profits,  and 
containing  such  other  data,  information  or  matter  as  the  tax  commis- 


REPORTS   AND   STATEMENT   OF   TAX  67 

sion  may  require.     (Added  by  ch.  132,  L.  1901,  and  re-enacted  ly  ch. 
172,  L.  1902.) 

8.  SAVINGS  BANKS. — Every  savings  bank  liable  to  pay  a  tax  under 
section  one  hundred  and  eighty-nine  of  this  chapter,  shall  on  or  before 
August  first  in  each  year  make  a  written  report  to  the  tax  commission 
of  its  condition,  at  the  close  of  business  on  June  thirtieth  preceding, 
stating  the  par  value  of  its  surplus,  and  undivided  earnings  and  con- 
taining such  other  data,  information  or  matter  as  the  tax  commission 
may  require. 

9.  INVESTMENT   COMPANIES. — Every   investment   company   liable   to 
pay  a  tax  under  section  one  hundred  and  eighty-eight-a  of  this  chapter 
shall,  on  or  before  August  first  in  each  year,  make  a  written  report 
to  the  tax  commission  of  its  condition  at  the  close  of  business  on  June 
thirtieth  preceding,  separately  stating  the  amount  of  its  capital  stock, 
the  amount  of  its  surplus,  and  the  amount  of  its  undivided  profits, 
and  containing  such  other  data,  information  or  matter  as  the  tax 
commission  may  require.     (Former  sec.  189,  Tax  Law,  added  ly  ch. 
117,  L.  1901,  ch  317,  L.  1915,  ch.  707,  L.  1917.) 

Source:  Ch.  361  of  L.  1881,  sec.  1;  ch.  361,  L.  1881,  sec.  5,  as 
amended  by  ch.  425,  L.  1895;  ch.  361,  L.  1881,  sec.  7;  ch.  409,  L.  1882, 
sec.  322,  as  amended  by  ch.  196,  L.  1894;  ch.  679,  L.  1886,  sec.  2. 
Subds.  7,  8  and  9  of  the  above  section  are  new. 

Recent  Amendments. — The  amendment  of  1915  required  the  re- 
ports to  be  made  to  the  state  tax  commission,  instead  of  comptroller. 
The  amendment  of  1917  extended  the  time  for  making  the  report. 

The  time  when  taxes  are  payable  by  the  various  classes  of  cor- 
porations required  to  make  reports  under  the  various  provisions 
of  the  foregoing  section,  is  fixed  by  section  197  (former  194)  of 
the  Tax  Law  (infra). 

Prospective  character  of  section  192. — When  a  corporation 
organized  in  February,  1880,  made  a  report  under  section  192 
(formerly  189)  in  November,  1880,  and  paid  a  tax  in  January, 
1881,  such  report  and  payment  were  proper,  even  though  the 
corporation  had  not  been  in  existence  one  year.  This  construction 
does  not  give  the  act  a  retroactive  effect,  as  the  tax  was  for  the 
prospective  fiscal  expenditures  for  the  year  commencing  October 
30,  1880.  People  v.  Spring  Valley  Hydraulic  Gold  Co.,  92  N.  Y. 
383  (1883). 


68  CORPORATION   TAX    (ART.    9) 

The  above  act  is  prospective  in  character.  The  tax  imposed 
is  not  for  the  past  but  for  the  future  engagements  of  the  franchises. 
People  v.  Albany  Ins.  Co.,  92  K  Y.  460  (1883). 

Further  requirements  as  to  reports  of  corporations. — Every  re- 
port required  by  this  article  shall  have  annexed  thereto  the  affidavit 
of  the  president,  vice-president,  secretary  or  treasurer  of  the  corpo- 
ration, association  or  joint  stock  company  or  of  the  person  or  one  of 
the  persons,  or  the  members  of  the  partnership  making  the  same,  to 
the  effect  that  the  statements  contained  therein  are  true.  Such  reports 
shall  contain  any  other  data,  information  or  matter  which  the  tax 
commission  may  require  to  be  included  therein,  and  he  may  prescribe 
the  form  in  which  such  reports  shall  be  made  and  the  form  of  oath 
thereto.  When  so  prescribed  such  form  shall  be  used  in  making  the 
report.  The  commission  may  require  at  any  time  a  further  or  sup- 
plemental report  under  this  article,  which  shall  contain  information 
and  data  upon  such  matters  as  the  commission  may  specify.  (See.  194, 
former  sec.  191,  Tax  Law,  amended  ch.  317,  L.  1915.) 

Source:  See  source  to  sec.  192,  Tax  Law,  supra;  same  references. 

Recent  Amendments. — The  amendment  of  1915  substitutes  commis- 
sion for  comptroller. 

Powers  of  tax  commission  to  examine  into  affairs  of  corpora- 
tion.— In  case  any  report  required  by  any  of  the  preceding  sections  of 
this  article  shall  be  unsatisfactory  to  the  commission,  or  if  any  such 
report  is  not  made  as  herein  required,  the  commission  is  authorized  to 
make  an  estimate  of  the  dividends  paid  by  such  corporation  and  the 
value  of  the  capital  stock  employed  by  it,  from  any  such  report  or 
from  any  other  data,  and  to  order  and  state  an  account  according  to 
the  estimate  and  value  so  made  by  it  for  the  taxes,  percentage  and 
interest  due  the  state  from  such  corporation,  association,  joint  stock 
company,  person  or  partnership.  The  commission  shall  also  have 
power  to  examine  or  cause  to  be  examined  in  case  of  a  failure  to  re- 
port or  in  case  the  report  is  unsatisfactory  to  it,  the  books  and  rec- 
ords of  any  such  corporation,  joint  stock  association,  company,  foreign 
banker,  person  or  partnership,  and  may  hear  testimony  and  take  proofs 
material  for  its  information,  either  personally  and  may  appoint  a 
commissioner  by  a  written  appointment  under  its  official  seal  for 
that  purpose.  Every  commissioner  so  appointed  shall  be  authorized 
to  make  such  examination  and  take  such  testimony  and  hear  such 
proofs  and  report  the  proofs  and  testimony  so  taken  and  the  result 
of  his  examination  so  made  and  the  facts  found  by  him  to  the  corn- 


REPORTS   AND   STATEMENT   OF   TAX  69 

mission.  The  commission  shall,  therefrom,  or  from  any  other  data 
which  shall  be  satisfactory  to  it,  order  and  state  an  account  for  the 
tax  due  the  state,  together  with  the  expenses  of  such  examination  and 
the  taking  of  such  testimony  and  proofs.  Such  expenses  shall  be  fixed 
and  adjusted  by  the  commission.  (Sec.  195,  former  see.  192,  Tax  Law, 
amended  ch.  317,  L.  1915.) 

Source:  L.  1880,  ch.  542,  sec.  1,  as  amended  by  L.  1881,  ch.  361  and 
sees.  11,  12,  13,  as  added  by  L.  1882,  ch.  151,  and  amended  by  L.  1885, 
ch.  501,  and  L.  1894,  ch.  562;  L.  1882,  ch.  409,  sees.  322,  323,  as 
amended  by  L.  1895,  ch.  196. 

Recent  Amendments. — The  amendment  of  1915  substitutes  commis- 
sion for  comptroller. 

(This  and  subsequent  sections  are  more  fully  treated  in  a  later 
chapter.) 

Comptroller  not  bound  by  corporation's  report;  burden  on 
relator. — The  comptroller  is  not  bound  by  the  report  of  the  officers 
of  a  corporation  as  to  the  value  of  the  stock,  but  may  act  as  an 
assessor,  and  fix  the  value  of  the  capital  stock  employed  within  the 
state  of  New  York,  according  to  information  obtained  or  on  his 
judgment,  and  his  decision  will  not  be  disturbed  unless  clearly 
shown  to  be  erroneous.  People  ex  rel.  Am.  Axe  &  Tool  Co.  v. 
Roberts,  82  Hun,  313  (1894),  affd  147  N.  Y.  69. 

Evidence  of  comptroller's  dissatisfaction  with  treasurer's 
appraisement. — The  fact  that  the  comptroller  makes  a  new  ap- 
praisement, and  rejects  that  made  by  the  treasurer  of  a  corpora- 
tion, is  sufficient  evidence  of  dissatisfaction  with  the  company's 
appraisement.  People  ex  rel.  Metropolitan  8.  Co.  v.  TZelsey, 
101  App.  Div.  248  (1905). 

Notice  of  statement  of  tax;  interest — Upon  auditing  and  stating 
every  account  for  taxes  or  other  charges  under  this  article,  the  com- 
mission shall  forthwith  send  notice  thereof  in  writing  to  the  person, 
partnership,  company,  association  or  corporation  against  whom  the 
same  is  made,  which  notice  may  be  mailed  to  the  post-office  address 
of  such  person,  partnership,  association,  company  or  corporation.  All 
accounts  so  audited  and  stated  shall  bear  interest  upon  the  total 
amount  found  due  thereon  to  the  state,  for  taxes,  percentage,  interest 
and  other  charges,  from  the  expiration  of  thirty  days  after  sending 


70  CORPORATION   TAX    (ART.    9) 

such  notice  until  payment  thereof  shall  be  made,  and  shall  be  added 
thereto  and  collected  therewith  by  the  comptroller.  (See.  196,  former 
seo.  193,  Tax  Law,  ch.  317,  L.  1915.) 

Source:  L.  1880,  ch.  642,  sees.  15,  16,  as  added  by  ch.  501,  L.  1885, 
without  change  of  substance. 

Recent  Amendments. — The  amendment  of  1915  substituted  commis- 
sion for  comptroller  and  added  the  words  at  the  end  of  the  section  as 
to  the  collection  by  the  comptroller. 

Payment  of  tax  and  penalty  for  failure — A  tax  imposed  by  sec- 
tion one  hundred  and  eighty-two  or  one  hundred  and  eighty-six  of 
this  chapter,  shall  be  due  and  payable  into  the  state  treasury  on  or  be- 
fore the  fifteenth  day  of  January  in  each  year.  A  tax  imposed  by  sec- 
tion one  hundred  and  eighty-four  of  this  chapter  on  a  transportation 
or  transmission  corporation,  or  by  section  one  hundred  and  eighty-five, 
on  elevated  railroads  or  surface  railroads  not  operated  by  steam  shall 
be  due  and  payable  into  the  state  treasury  on  or  before  the  first  day 
of  August  in  each  year.  A  tax  imposed  by  section  one  hundred  and 
eighty-seven  of  this  chapter  on  an  insurance  corporation  shall  be  due 
and  payable  into  the  state  treasury  on  or  before  the  first  day  of  June 
in  each  year.  A  tax  imposed  by  section  one  hundred  and  eighty-eight, 
one  hundred  and  eighty-eight-a  or  one  hundred  and  eighty-nine  shall 
be  due  and  payable  into  the  state  treasury  on  or  before  the  first  day 
of  September  in  each  year.  A  tax  imposed  by  section  one  hundred 
and  ninety-one  of  this  chapter  on  a  foreign  banker  shall  be  due  and 
payable  into  the  state  treasury  on  or  before  February  first  in  each 
year.  If  such  tax  in  any  case  is  not  paid  within  thirty  days  after 
the  same  becomes  due,  or  if  the  report  of  any  such  corporation  is  not 
made  within  the  time  required  by  this  article,  the  corporation,  asso- 
ciation, joint  stock  company,  person  or  partnership,  liable  to  pay  the 
tax,  shall  pay  into  the  state  treasury  iii  addition  to  the  amount  of 
such  tax,  a  sum  equal  to  five  per  centum  thereof,  and  one  per 
centum  additional  for  each  month  the  tax  remains  unpaid,  which  sum 
shall  be  added  to  the  tax  and  paid  or  collected  therewith.  Every 
corporation,  association,  joint  stock  company,  person  or  partnership 
failing  to  make  the  annual  report  required  by  this  article,  or  fail- 
ing to  make  any  special  report  required  by  the  commission,  within 
any  reasonable  time  to  be  specified  by  the  commission,  shall  forfeit  to 
the  people  of  the  state  the  sum  of  one  hundred  dollars  for  every  such 
failure,  and  the  additional  sum  of  ten  dollars  for  each  day  that  such 
failure  continues.  Such  tax  shall  be  a  lien  upon  and  bind  all  the  real 
and  personal  property  of  the  corporation,  joint  stock  company  or  as- 


REPORTS  AND  STATEMENT  OF  TAX  71 

sociation  liable  to  pay  the  same  from  the  time  when  it  is  payable 
until  the  same  is  paid  in  full.  (Sec.  197,  former  sec.  194,  Tax  Law, 
as  amended  in  1901,  chs.  118,  132  and  558,  ch.  317,  L.  1915  and  707, 
L.  1917.) 

Source:  L.  1881,  ch.  361,  sees.  4,  5,  6,  7;  L  1882,  ch.  409,  sec.  322, 
as  amended  by  L.  1895,  ch.  196;  L.  1886,  ch.  679,  sec.  1,  as  amended 
by  L.  1895,  ch.  418. 

Recent  Amendments. — The  amendment  of  1915  substitutes  commis- 
sion for  comptroller.  The  amendment  of  1917  inserts  the  reference  to 
section  one  hundred  and  eighty-eight-a  (investment  companies). 

Settlement  by  comptroller  of  tax  after  January  isth. — The 

comptroller  may  settle  an  account  for  a  tax  imposed  by  section  182, 
Tax  Law,  after  the  15th  day  of  January  in  the  year  in  which  the 
tax  becomes  due.  People  ex  rel.  F.  A.  Stokes  Co.  v.  Roberts,  90 
Hun,  533  (1895). 

Lien  of  tax  on  real  and  personal  property. — The  precise  time 
at  which  the  lien  attaches  does  not  appear  to  be  fixed  by  the  stat- 
ute. Section  197  of  the  Tax  Law  provides  that  the  tax  is  due 
and  payable  on  or  before  the  various  dates  mentioned  therein. 
It  also  appears  that  such  tax  may  be  settled  after  the  dates  men- 
tioned (People  ex  rel.  Stokes  Co.  v.  Roberts,  supra).  It  is  not 
unreasonable  to  suppose  that  it  runs  from  the  time  men- 
tioned in  section  196,  viz.,  from  the  day  the  tax  is  audited  and 
stated,  and  notice  thereof  sent  to  the  corporation  or  person  charge- 
able therewith.  This  is  on  the  theory  applied  in  the  local  taxation 
of  real  and  personal  property,  when  a  tax  is  presumed  to  be  due  at 
the  time  it  is  fixed  and  extended  on  the  tax  rolls.  Lathers  v.  Keogh, 
109  N.  Y.  583  (1888) ;  Burr  v.  Palmer,  53  App.  Div.  358  (1900). 

Priority  in  payment  of  state  tax  from  insolvent  estate. — 

State  taxes  are  entitled  to  a  priority  in  payment  out  of  the  funds 
of  an  insolvent  corporation  by  a  receiver  appointed  in  proceed- 
ings to  foreclose  a  mortgage  on  the  company's  property.  Central 
Trust  Co.  v.  N.  Y.  C.  &  H.  R.  R.  Co.,  110  N.  Y.  250  (1888). 
In  a  recent  case  where  the  property  of  an  insolvent  corporation 
was  operated  by  the  receiver  pendente  lite,  and  franchise  taxes  were 


78  CORPORATION   TAX    (ART.    9) 

levied  during  the  time  of  such  operation,  it  was  held  that  the  plain- 
tiff who  bought  the  property  at  a  foreclosure  sale  "subject  to  all 
taxes  which  might  be  levied  thereon  at  the  time  of  the  sale/'  had 
taken  the  property  subject  to  such  lien,  and  that  the  state's  taxes 
were  paramount  to  all  prior  encumbrances.  N.  Y.  Terminal  Co. 
v.  Gaus,  204  N.  Y.  512  (1912). 

In  the  Matter  of  Carnegie  Trust  Co.,  206  N.  Y.  (1912),  398, 
the  court  said  that  while  it  entertained  no  doubt  as  to  the  wisdom 
of  adopting  the  doctrine  that  the  state  may  claim  priority  in  re- 
spect to  the  payment  of  taxes,  "there  is  one  limitation  *  *  * 
and  that  pertains  to  claims  in  which  a  prior  specific  lien  has  been 
obtained  by  the  creditors"  citing  Wise  v.  Wise  Co.,  153  K  Y.  507. 

In  the  latter  case  taxes  assessed  upon  the  personal  property  of  a 
corporation  became  due  subsequent  to  the  levy  of  an  attachment 
and  execution  by  creditors.  The  corporation  was  insolvent  and  a 
receiver  appointed.  The  receiver  of  taxes  sought  to  have  his  claim 
satisfied  in  preference  to  the  judgment  on  the  theory  that  the  sov- 
ereign from  most  ancient  times  was  entitled  to  priority  of  payment 
over  all  claims  by  subjects.  The  court  did  not  sustain  this  conten- 
tion, but  held  there  was  no  authority  for  preferring  such  claims 
over  specific  prior  liens — distinguishing  Central  Trust  Co.  v.  N.  Y. 
C.  (supra). 

The  Federal  Court  in  construing  this  very  section  (sec.  197)  and 
having  before  it  the  question  of  whether  the  state  has  a  priority 
of  payment  out  of  a  fund  in  court  for  distribution,  in  the  case  of 
Central  Trust  Co.  v.  Third  Ave.  E.  Co.,  186  Fed.  291  (1911)  says: 
"We  think  it  fair  to  suppose  the  legislature  intended  to  make  the 
tax  a  lien  on  the  property  in  its  then  condition,"  i.  e.,  at  the  time 
the  lien  accrued,  and  therefore  subject  to  the  mortgage. 

In  Sweet  v.  The  All-Package  Grocery  Stores  Co.,  U.  S.  District 
Court  for  the  Southern  District  of  New  York,  reported  in  the  N".  Y. 
Law  Journal  of  April  25,  1919,  Judge  Hand  held:  that,  while  as  a 
matter  of  general  administrative  procedure  the  state  courts  have 
decided  that  a  tax  or  other  indebtedness  to  the  state  is  entitled  to 
payment  prior  to  all  claims  not  based  on  a  specific  lien,  the  federal 
courts  will  not  grant  such  a  priority  under  the  Bankruptcy  Law 


REPORTS   AND   STATEMENT   OF   TAX  73 

unless  such  a  lien  exists;  that  there  is  no  essential  difference  be- 
tween a  license  fee  to  begin  business  (181)  and  a  license  fee  to 
continue  business  (182)  excepting  that  under  the  provisions  of 
section  197  a  lien  is  imposed  in  the  latter  case.  The  court  in  this 
case  quotes  with  approval  the  three  cases  mentioned  above. 


PART  II 

THE  BUSINESS   CORPORATIONS  TAX 

BEING  THE  FRANCHISE  TAX  ON  CORPORATIONS  BASED  ON  NET  INCOME 
UNDER  ARTICLE  9-A  OF  THE  TAX  LAW. 


CHAPTEE  XI. 
AMENDMENTS  OF  1919  TO  ARTICLE  9-a. 

The  franchise  tax  on  manufacturing  and  mercantile  corpora- 
tions passed  in  June,  1917,  by  the  Legislature  of  the  State  of  New 
York,  and  known  as  Chapter  726  of  the  laws  of  that  year,  imposed 
a  tax  of  3%  based  on  their  net  income  returned  to  the  Treasury 
Department  under  the  Federal  Income  Tax  Act.  This  law  was 
amended  in  1918  principally  to  settle  doubtful  portions  deemed 
unconstitutional,  and  by  Chapter  628  of  the  Laws  of  1919,  it  was 
again  amended.  The  important  changes  in  Chapter  628  are 
given  below. 

1.  Business  corporations  taxed. — It  brought  within  its  pro- 
visions, by  changes  in  the  title  and  body  of  the  act,  all  business 
corporations  with  the  exception  of  those  expressly  exempted  under 
Section  210  of  the  act. 

2.  Entire  net  income   taxed. — Under  Paragraph   3   of  Sec- 
tion 208,  it  clearly  outlined  that  the  entire  net  income  of  the  cor- 
poration was  to  be  taxed  and  defined  it  thus : 

"3.  The  term  "entire  net  income"  means  the  total  net  income  before 
any  deductions  have  been  made  for  taxes  paid  or  to  be  paid  to  the 
government  of  the  United  States  on  either  profits  or  net  income  or 
for  any  losses  sustained  by  the  corporation  in  other  fiscal  or  calen- 
dar years  whether  deducted  by  the  government  of  the  United  States 
or  not." 

3.  Foreign  corporations'  return. — It  added  to  the  first  para- 
graph of  Section  211  the  following  sentence: 

"Any  corporation  not  organized  under  the  laws  of  any  state  within 
the  United  States  shall  state  the  facts  in  relation  to  its  entire  net 
income  as  though  organized  under  the  laws  of  this  state." 

77 


78  THE   BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 

The  purpose  of  this  addition  was  to  apportion  the  tax  on  the 
basis  of  the  entire  income  earned  by  a  foreign  corporation  doing 
business  outside  of  the  United  States  in  the  proportion  that  the 
income  earned  by  it  in  the  state  bore  to  the  entire  income.  In  its 
return  to  the  Treasury  Department  such  foreign  corporation  may 
only  return  and  be  taxed  on  the  income  earned  by  it  within  the 
United  States. 

4.  Stock  in  other  corporations  to  be  allocated. — It  added 
subdivision  5  to  Section  211.    This  subdivision  included  among  the 
bases  of  the  apportionment  of  income  earned  within  the  state  by 
a  corporation  having  assets  elsewhere,  the  value  of  stock  in  other 
corporations  owned  by  it,  as  allocated  by  the  process  set  forth  in 
Section  214.     It  reads  as  follows: 

"5.  The  average  total  value  for  the  fiscal  or  calendar  year  of  the 
stock  of  other  corporations  owned  by  the  corporation,  and  the  propor- 
tion of  the  average  value  of  the  stock  of  such  other  corporations 
within  the  state  of  New  York,  as  allocated  pursuant  to  section  two 
hundred  and  fourteen  of  this  chapter." 

5.  Segregation  required. — It  added  to  the  eighth  paragraph 
of  Section  211  a  provision  for  the  segregation  of  assets  where  there 
was  no  income,  in  the  following  words: 

"Corporations  having  no  net  income  shall,  however,  complete  the 
segregation  of  assets  in  every  case." 

The  purpose  of  this  amendment  was  to  enable  the  Tax  Commis- 
sion properly  to  allocate  or  apportion  the  minimum  tax  under  the 
method  of  computation  provided  in  Section  214  of  the  act. 

6.  Merged  and  consolidated  corporations. — By  more  appro- 
priate words  in  Section  214-a,  referring  to  merged  and  consolidated 
corporations,  it  sought  to  prevent  evasions  of  the  law.  The  amended 
section,  showing  in  the  brackets  the  words  omitted,  and  the  new 
words  by  italics,  are  given  below: 

Sec.  214-a.  Taxation  of  [merged  or  consolidated]  corporations  ac- 
quiring assets  or  franchises  of  other  corporations.  If  any  corpora- 
tion taxable  under  this  article  shall  [take  over]  acquire  either  di- 
rectly, indirectly  or  by  merger  or  consolidation  the  major  portion  of 


SUBJECTS   OF   TAXATION  79 

the  assets  or  the  franchise  of  another  corporation  or  of  corporations 
exercising  any  franchise  or  franchises  or  doing  any  business  in  this 
state  during  [the]  any  year  [ending  with  the  thirty-first  day  of  Oc- 
tober, such  corporation  shall  make  a  consolidated  report  for  all  the 
corporations  so  merged  or  consolidated  as  though  the  merged  or 
consolidated  corporation  had  existed  and  done  business  as  an  entity 
throughout  the  year  for  which  the  report  is  made  and  shall  be  taxed 
for  the  year  to  ensue  upon  the  basis  of  such  report  and  as  herein- 
before provided  in  this  article],  it  shall  include  in  its  own  next  an- 
nual return,  in  addition  to  its  own  entire  net  income,  so  much  of  the 
entire  net  income  of  the  corporation  or  corporations  whose  assets  or 
franchises  it  acquired  as  shall  not  have  been  used  or  included  in  meas- 
uring a  franchise  tax  to  this  state,  and  sliall  not  be  taxed  upon  such 
combined  entire  net  incomes  for  the  year  to  ensue  and  as  herein- 
before provided.  The  provisions  for  a  minimum  tax  shall  be  applied 
only  when  under  such  provisions  a  tax  will  result  in  excess  of  the 
amount  which  would  be  produced  by  a  tax  on  entire  net  income  as 
hereinbefore  provided  and  then  in  lieu  thereof. 

7.     Rate  now  4%%.  —  The  rate  of  tax  in  Section  215  was  in- 
creased from  3  to 


8.  Comptroller    may    refund    under    1919    law.  —  The    last 
paragraph  of  Section  219-j  as  it  heretofore  existed  was  omitted  and 
a  provision  was  inserted  for  the  refunding  by  the  Comptroller  out 
of  the  current  revenues  in  his  hands,  of  excess  taxes  paid  by  a  cor- 
poration by  reason  of  a  credit  given  by  the  Tax  Commission  under 
this  section.     A  more  convenient  administrative  arrangement  for 
charging  or  crediting  such  taxes  was  provided  in  the  1919  law, 
which  is  given  in  full  at  the  end  of  Chapter  XVII  infra. 

9.  Fixtures  defined.  —  It  amended  Section  219-1  by  more  clear- 
ly denning  personal  property  as  applied  to  manufacturing  cor- 
porations.    Differences  resulting  in  construing  the  original  section 
as  changing  the  definition  of  real  estate,  had  led  to  much  litigation 
in  connection  with  the  assessment  of  buildings  by  local  assessors. 
The  amended  section  with  the  omitted  words  shown  in  brackets  and 
the  new  words  by  italics,  is  given  below: 

Sec.  219-1.     Personal  property  defined.     The  term  "personal  prop- 
erty," for  the  purposes  of  the  exemption  from  assessment  and  taxa- 


80  THE  BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

tion  thereon  locally  as  granted  by  section  two  hundred  and  nine- 
teen-j  of  this  chapter,  shall  include  [such]  any  movable  machinery 
and  equipment  [affixed  to  the  building  as  would  not  pass  between 
grantor  and  grantee  as  a  part  of  the  premises  if  not  specifically 
mentioned  or  referred  to  in  the  deed,  or  as  would,  if  the  building 
were  vacated  or  sold,  or  the  nature  of  the  work  carried  on  therein 
changed,  be  moved,  except]  used  for  trade  or  manufacture  and  not 
essential  for  the  support  of  the  building,  structure  or  superstruc- 
ture, and  removable  without  material  injury  thereto.  The  term  ((per- 
sonal  property"  as  used  in  such  section,  shall  not  include  boilers, 
ventilating  apparatus,  elevators,  [gas,  electric  and  water]  plumbing, 
heating,  lighting  and  power  generating  apparatus,  [and]  shafting 
other  than  counter-shafting,  equipment  for  the  distribution  of  heat, 
light,  power,  gases  and  liquids,  nor  any  equipment  consisting  of  struc- 
tures or  erections  to  the  operation  of  which  machinery  is  not  essen- 
tial. An  owner  of  a  building  is  entitled  to  the  same  exemption  under 
this  section  as  a  lessee  [and  every  assessment  of  real  property  made 
subsequent  to  June  fourth,  nineteen  hundred  and  seventeen,  shall  be 
subject  to  the  provisions  of  this  section  as  amended  hereby], 

Sec.  15.  This  act   shall   not   affect   any    action    or    proceeding   now 
pending. 

Sec.  16.  This  act  shall  take  effect  immediately. 

10.  Administrative  changes. — An  amendment  to  Section 
219-a  changed  the  date  from  November  1st  to  December  1st  in 
each  year  when  the  Tax  Commission  shall  audit  and  state  the  ac- 
count of  each  corporation  liable  to  a  tax  under  Article  9-a.  There 
were  slight  verbal  changes  in  Sections  209,  211,  214,  219-b  and 
219-d  to  carry  out  the  purpose  expressed  in  Section  208  that  the  tax 
was  to  be  based  on  the  entire  income,  and  the  second  paragraph 
of  Section  211  contained  a  statement  that  deductions  for  losses  in 
prior  years  should  be  specified  in  the  report.  Section  219-j  was 
amended  by  Chapter  138  of  the  Laws  of  1919  providing  for  a  re- 
fund by  the  Comptroller  to  corporations  paying  excess  taxes. 


CHAPTER  XII. 
SUBJECTS  OF  TAXATION. 

1.  Business    corporations   taxed. — Article   9-a    added    as   a 
new  article  to  the  Tax  Law  by  Chapter  726  of  the  Laws  of  1917, 
amended  by  Chapter  276  of  the  Laws  of  1918,  imposed  a  tax  on 
manufacturing  and  mercantile  corporations  based  on  net  income, 
and  Chapter  628  of  the  Laws  of  1919  extended  the  scope  of  the 
law  so  that  it  applied  practically  to  all  business  corporations  and 
exempted  only  Eealty  Companies,  Holding  Companies,  Public  Serv- 
ice and  Public  Utility  Corporations,  Banks,  and  Insurance  Com- 
panies (Section  210). 

2.  Personal  service  corporations  now  taxable  under  Article 
g-a. — There  had  been  some  duplication  of  assessments  by  local  as- 
sessors and  the  State  Tax  Commissioners  under  the  1917  and  1918 
laws.     This  duplication  occurred  more  often  with  Hotel  corpora- 
tions and  Contracting  companies  who  rendered  personal  service  and 
at  the  same  time  supplied  merchandise  or  material. 

The  case  of  People  ex  rel.  McCord  v.  Cantor  pending  in  the 
Supreme  Court,  New  York  County,  raises  such  an  issue  as  to  the 
right  to  tax  such  corporations  for  local  purposes  prior  to  the  1919 
amendments  to  Article  9-a.  The  present  law  places  all  of  these 
personal  service  corporations,  whether  engaged  in  purely  personal 
service  or  of  a  mixed  character,  under  Article  9-a. 

The  state  may  now  tax  on  the  basis  of  net  income  varied  forms 
of  personal  service  corporations  engaged  in  business  including  Ac- 
counting, Advertising,  Assaying,  Auto- Gar  age,  Bonding,  Chemical 
Laboratory,  Collection,  Custom  House,  Brokerage,  Dredging,  En- 
gineering, Hotel,  Insurance,  Brokerage,  Investment,  Laundry,  Pat- 
tern Publication,  Restaurant,  Safe  Deposit,  Salvage  and  Wrecking, 

81 


92  THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

Shipping  Agent,  Steamship  Agent,  Storage  Warehouse,  Taxicab, 
Theatre  Ticket,  Trucking,  etc.,  Corporations. 

3.  Exceptions  from  tax. — Section  210  of  the  Tax  Law  as 
amended  in  1918,  containing  the  classes  of  corporations  exempt 
from  the  franchise  tax  on  net  income,  reads  as  follows : 

Sec.  210.  Corporations  exempted  from  article. — Corporations 
wholly  engaged  in  the  purchase,  sale  and  holding  of  real  estate  for 
themselves,  holding  corporations  whose  principal  income  is  derived 
from  holding  the  stocks  and  bonds  of  other  corporations  and  corpo- 
rations liable  to  a  tax  under  section  one  hundred  and  eighty-four 
to  one  hundred  and  eighty-nine  inclusive  of  this  chapter,  banks, 
savings  banks,  institutions  for  savings,  title  guaranty,  insurance  or 
surety  corporations  shall  be  exempt  from  the  payment  of  the  taxes 
prescribed  by  this  article. 

Realty  corporations  are  only  exempted  from  Article  9-a  if  they 
purchase,  sell  or  hold  real  estate  for  themselves.  They  are  then 
taxable  under  Article  9.  If  they  engage  in  construction  work  or  act 
as  agents  for  others,  they  will  be  taxable  under  Article  9-a. 

Holding  corporations  are  defined  as  those  whose  principal  in- 
come is  derived  from  holding  the  stocks  and  bonds  of  other  cor- 
porations. If  the  income  is  partly  derived  from  holding  the  securi- 
ties of  other  corporations  and  in  part  from  other  sources,  that  from 
which  the  greater  source  of  revenue  is  derived  determines  the  basis 
of  the  tax.  If  there  is  no  net  income,  in  cases  of  mixed  corpora- 
tions of  this  character,  then  the  basis  of  determining  the  tax  will 
depend  upon  the  source  from  which  the  larger  amount  of  gross 
revenue  is  received. 

The  term  '^holding  corporations"  has  been  construed  by  the  State 
Tax  Commission  to  mean  that  class  of  corporations  whose  activities 
are  confined  to  holding  stocks  and  bonds  for  purposes  of  control  in  a 
permanent  manner  and  not  such  as  are  engaged  in  selling  various 
stocks  and  bonds  and  replenishing  a  stock  of  such  securities  from 
time  to  time.  In  other  words,  folding  corporations"  are  not  de- 
fined to  be  merely  such  as  derive  their  principal  income  from  hold- 


SUBJECTS    OF    TAXATION  83 

ing  stocks  and  bonds,  but  such  as  are  actually  holding  companies. 
(N.  Y.  State  Tax  Bulletin,  May,  1919.) 

The  exemption  by  specific  mention,  as  well  as  by  mention  of  sec- 
tion numbers,  is  a  double  expression  of  intention.  The  specific  ex- 
emptions of  banks,  savings  banks,  institutions  for  savings,  title 
guaranty,  insurance  or  surety  corporations  also  fall  within  the  ex- 
emptions of  insurance  corporations,  trust  companies  and  savings 
banks,  covered  by  Sections  187  to  189. 

The  following  are  the  exceptions  made  by  reference  to  section 
numbers  of  the  Tax  Law : 

Section  184. — Corporations  formed  for  steam  surface  railroad, 
canal,  steamboat,  ferry,  express,  navigation,  pipe  line,  transfer  bag- 
gage express,  telegraph,  telephone,  palace  or  sleeping  car  purposes, 
and  every  other  transportation  corporation  not  included  in  Sec- 
tions 185  and  186. 

Section  185. — Eailroads,  elevated  or  surface,  not  operated  by 
steam. 

Section  186. — Waterworks,  gas,  heat,  light  and  power,  electric 
or  steam  companies. 

Section  187. — Domestic  insurance  corporations  and  insurance 
corporations  formed  in  other  states  of  the  United  States,  and  doing 
business  in  this  State,  except  fire  and  marine  insurance  companies ; 
and  those  formed  under  the  laws  of  foreign  states  and  countries 
(except  life,  health,  or  casualty  companies)  and  Lloyds  under- 
writers; this  section  does  not  include  fraternal  benefit  orders,  do- 
mestic animal  insurance  companies,  town  and  county  co-operative 
insurance  companies,  and  companies  required  to  report  to  the  su- 
perintendent of  banks. 

Section  188. — Domestic  trust  companies  and  any  company  au- 
thorized to  do  trust  company  business,  solely  or  in  connection  with 
any  other  business  under  general  or  special  law. 

Section  189. — Savings  banks  formed  under  the  laws  of  this 
State. 


CHAPTEE  XIII. 
WHAT  Is  NET  INCOME. 

The  Present  Law : 

Sec.  209.     Franchise  tax  on  corporations  based  on  net  income. 

—For  the  privilege  of  exercising  its  franchise  in  this  state  in  a 
corporate  or  organized  capacity  every  domestic  corporation,  and  for 
the  privilege  of  doing  business  in  this  state,  every  foreign  corpora- 
tion, except  corporations  specified  in  the  next  section,  shall  annually 
pay  in  advance  for  the  year  beginning  November  first  next  preceding 
an  annual  franchise  tax,  to  be  computed  by  the  tax  commission  upon 
the  basis  of  its  entire  net  income  for  its  fiscal  or  the  calendar  year 
next  preceding,  as  hereinafter  provided,  which  entire  net  income  is 
presumably  the  same  as  the  entire  net  income  upon  which  such  corpo- 
ration is  required  to  pay  a  tax  to  the  United  States. 

The  amendments  of  1918 — Constitutionality. — The  amend- 
ments of  1918  struck  out  the  clause  in  the  Act  of  1917,  which  made 
the  income  upon  which  foreign  and  domestic  manufacturing  and 
mercantile  corporations  are  required  to  pay  a  federal  income  tax, 
the  essential  basis  for  the  computation  of  this  annual  franchise  tax. 
It  was  the  purpose  of  those  who  drew  the  law,  to  make  the  income 
tax  report  of  these  corporations  to  the  United  States,  the  basis  for 
the  State  franchise  tax.  The  amendments  of  1918  aimed  to  avoid 
the  objection  that  the  State  had  deputized  its  tax  assessing  powers 
to  the  federal  internal  revenue  authorities. 

The  State  Tax  Commission  in  its  1918  annual  report,  recom- 
mended the  addition  of  the  word  "presumably,"  which  change 
would  relieve  the  Commission  from  the  absolute  necessity  of  tak- 
ing the  figures  of  the  United  States  Treasury  Department  as  the 
amount  of  the  net  income. 

The  same  idea  was  carried  out  by  adding  to  the  end  of  Subdi- 
vision 2,  Section  211,  calling  for  the  report  of  the  corporation  to 

84 


WHAT   IS   NET   INCOME?  85 

be  made  to  the  State  Tax  Commission,  the  italicized  words  shown 

at  the  end  of  the  following  paragraph: 

"2.  The  amount  of  its  net  income  for  its  preceding  fiscal  or  the 
preceding  calendar  year  as  shown  in  the  last  return  of  annual  net 
income  made  by  it  to  the  United  States  treasury  department,  and  if 
the  corporation  shall  claim  that  such  return  is  inaccurate,  the  amount 
claimed  6t/  it  to  be  the  net  income  for  such  period." 

The  amendments  of  1919. — While  the  1918  amendments  were 
designed  to  make  the  law  constitutional,  the  amendments  of  1919 
were  intended  to  clarify  the  construction  placed  upon  Section  209. 
Under  the  former  section  many  corporations  contended  that  the 
net  income  upon  which  "the  corporation  was  required  to  pay  a  tax 
to  the  United  States"  meant  the  total  net  income  returned  to  the 
Treasury  Department,  less  the  excess  profits  tax.  The  Legisla- 
ture of  1919,  therefore,  inserted  the  word  "entire"  before  the 
words  "net  income"  in  the  several  places  where  they  occurred  in 
the  statute,  and  in  Section  208  of  the  new  law,  under  the  heading 
of  "Definitions/7  added  the  new  paragraph  defining  net  incomes, 
supra. 

The  excess  profits  deduction. — The  confusion  that  had  arisen 
in  relation  to  the  construction  of  the  statute  was  largely  due  to  the 
fact  that  the  original  New  York  law  provided  that  the  tax  be  based 
on  the  net  income  "upon  which  such  corporation  is  required  to 
pay  a  tax  to  the  United  States."  Both  the  federal  income  tax  and 
the  federal  excess  profits  tax  are  based  on  a  report  of  "net  income 
on  which  corporations  are  required  to  pay  a  tax  to  the  United 
States."  In  the  case  of  the  federal  income  tax,  the  excess  profits 
tax  is  deducted  before  calculating  the  amount  upon  which  the  cor- 
poration is  required  to  pay  a  tax  to  the  United  States.  This  is 
done  in  accordance  with  Section  29  of  the  federal  income  tax  law 
of  September  8th,  1916,  as  amended  by  the  act  of  October  3d,  1917, 
which  reads  as  follows : 

In  assessing  income  tax,  the  net  income  embraced  in  the  return  shall 
also  be  credited  with  the  amount  of  any  excess  profits  tax  imposed 
by  act  of  Congress  and  assessed  for  the  same  calendar  or  fiscal  year 
upon  the  taxpayer. 


86  THE   BUSINESS   CORPORATIONS   TAX    (ABT.    9-A) 

The  excess  profits  tax,  however,  is  determined  on  the  whole 
amount  of  net  income  returned  by  the  corporation.  The  state  tax 
commission  has  made  a  ruling  that  the  net  income  which  the  New 
York  law  required  to  be  returned  as  the  basis  of  the  tax,  is  the 
"total  net  income  required  by  answer  No.  8  in  form  No.  1031,  of 
the  federal  corporation  income  tax  return,  from  which  the  excess 
profits  tax  has  not  been  deducted." 

The  corporations'  contention. — Attorneys  representing  corpo- 
rations, which,  under  this  ruling,  would  be  obliged  to  pay  heavy 
taxes  on  their  entire  net  income  including  the  charge  represented 
by  the  excess  profits  tax,  objected  to  this  decision  of  the  state  tax 
department  on  the  ground  that  it  was  not  a  fair  construction  of  the 
statute.  They  contended  that  at  the  time  the  state  income  tax  law 
was  passed  on  June  4th,  1917,  it  was  the  intention  of  the  New 
York  Legislature  to  create  a  tax  burden  falling  equally  upon  all 
corporations  directly  proportionate  to  their  net  income  or  profits. 
The  tax  was  to  be  paid  by  each  corporation  "upon  the  basis  of  its 
net  income  for  its  fiscal  or  calendar  year  next  preceding,  as  here- 
inafter provided,  upon  which  income  such  corporation  is  required 
to  pay  a  tax  to  the  United  States."  Although  the  word  "income" 
was  not  repeated  before  the  word  "tax,"  it  was  the  income  tax  of  the 
United  States  to  which  the  statute  had  reference  and  to  no  other 
tax.  They  argued  that  the  federal  law  of  September  8th,  1916, 
provided  that  in  arriving  at  the  net  income,  the  federal  income  tax 
should  be  deducted;  that  there  was  at  that  time  no  excess  profits 
tax  payable  to  the  federal  government;  that  the  federal  act  of  Oc- 
tober 3d,  1917,  was  passed  and  amended  the  income  tax  act  of  1916, 
by  providing  for  an  excess  profits  tax  in  addition  to  the  income  tax ; 
that  the  amended  federal  act  provided  that  in  arriving  at  the  tax- 
able net  income  the  income  tax  should  not  be  deducted,  but  that  the 
excess  profits  tax  should  be  deducted.  That  the  federal  tax  there- 
fore ceased  to  be  imposed  upon  the  same  net  income;  that  in  order 
to  continue  the  imposition  of  the  New  York  tax  upon  an  equal 
(net  income)  basis,  the  state  law  was  amended  so  that  the  cor- 
poration might  report  its  actual  net  income,  viz.,  the  income  after 


WHAT   IS   NET  INCOME?  87 

the  deduction  of  the  excess  profits  tax.  This  was  the  true  net 
income  on  which  the  corporation  paid  a  tax  to  the  United  States. 
To  carry  out  this  purpose,  the  New  York  amendment  was  to  be 
"construed  as  having  been  in  effect  *  *  *  as  of  the  date  of  the 
original  enactment  of  the  New  York  law."  Hence  federal  income 
taxes  were  to  be  deducted  under  the  1917  state  law,  and  excess 
profits  taxes  were  to  be  deducted  under  the  1918  New  York  law. 
This  in  each  case  would  result  in  net  income  from  the  corpora- 
tion's standpoint. 

Massachusetts  and  Connecticut  laws. — Two  recent  decisions 
of  sister  states,  on  this  question,  are  worthy  of  notice.  The  first 
is  the  opinion  of  the  Attorney-General  of  Connecticut,  dated  March 
1st,  1918,  in  relation  to  the  Connecticut  income  tax  law  of  1915, 
and  the  other  is  a  decision  of  the  Supreme  Court  of  Massachusetts, 
in  American  Printing  Co.  v.  Commonwealth  of  Massachusetts,  con- 
struing the  net  income  tax  on  corporations,  reported  in  120  N.  E. 
686.  Both  decisions  permit  a  deduction  of  the  excess  profits  tax. 
The  Massachusetts  income  tax  law  is  almost  identical  with  the  Con- 
necticut law  and  the  Connecticut  law  is  similar  in  language  to  the 
New  York  law.  In  both  cases  it  was  required  that  every  corpo- 
ration should  render  to  the  tax  commission  "a  true  copy  of  the  last 
return  made  to  the  collector  of  internal  revenue,  of  the  annual  net 
income  *  *  *  and  such  other  information  as  may  be  requested 
by  the  United  States  treasury  department  for  the  purpose  of  ascer- 
taining the  total  amount  of  net  income  taxable  under  the  United 
States  income  tax  act;  the  net  income  of  such  corporation  after 
making  the  deduction  authorized/'  "The  laws  of  each  of  these 
states  requires  a  tabulation  of  all  the  particulars  by  which  the 
United  States  arrives  at  the  net  income  subject  to  the  tax,  and  ap- 
propriates it  as  part  of  its  own  method  of  computing  the  net  in- 
come. No  opportunity  for  correction  or  change  is  permitted  either 
by  the  corporation  or  by  the  tax  commission  of  those  states.  The 
treasury  department  ruling  is  binding  on  that  point.  The  main 
points  of  difference  are:  (1)  that  the  Massachusetts  and  Connecti- 
cut laws  are  income  tax  laws  and  based  on  net  income;  (2)  that 


88  THE   BUSINESS   CORPORATIONS  TAX    (ART.    9-A) 

the  wording  of  the  Massachusetts  and  Connecticut  acts  is  essentially 
different,  being  based  on  "net  income  taxable  under  the  United 
States  income  tax  act."  (3)  The  New  York  law  uses  the  result 
of  the  federal  return  as  far  as  the  total  net  income  is  concerned, 
for  the  purpose  of  information  and  assessment,  but  reserves  to  itself 
the  right  to  ascertain  what  is  net  income  in  case  of  inaccuracy  or 
error,  while  the  Connecticut  and  Massachusetts  laws  leave  no  dis- 
cretion in  the  tax  commissioner  but  oblige  him  to  accept  the  net  in- 
come as  determined  under  the  federal  rules  and  regulations. 

The  State's  Contention. — The  New  York  Legislature  adopted 
as  the  basis  for  the  franchise  tax  on  manufacturing  and  mercantile 
corporations  the  figure  "reported"  as  "net  income"  to  the  federal 
government  in.  the  returns  made  to  that  government,  subject  to 
correction  by  the  State  Tax  Commission  for  inaccuracies  or  errors 
which  could  have  been  corrected  by  the  federal  authorities  them- 
selves. 

The  definition  of  "net  income"  for  purposes  of  this  state  fran- 
chise tax  is  found  in  Sections  211  and  214,  which  explain  the  pro- 
visions of  Section  209.  "Net  income"  means  "entire  net  income" 
of  the  corporation. 

The  sole  purpose  of  the  state  legislation  of  1918  amending  Ar- 
ticle 9-a  so  as  to  make  the  net  income,  taxable  under  the  state 
law,  "presumably"  the  same  as  the  net  income  taxed  by  the  United 
States  and  permitting  corrections  by  the  state  tax  commission  for 
fraud,  evasion  or  errors,  was  not  to  require  the  state  tax  commis- 
sion to  accept  in  every  instance  as  a  matter  of  law  the  figure  show- 
ing the  net  income  reported  to  the  United  States  by  deducting  the 
income  taxes  paid  and  crediting  the  excess  profits  taxes  paid  to  the 
federal  government,  but  simply  to  protect  the  constitutionality  of 
our  statute  by  making  the  assessment  of  net  income  under  the 
state  law  a  proceeding  separate  from  the  assessment  of  net  income 
under  the  federal  laws. 

The  amendments  of  1918  did  not  cut  away  the  basis  of  assess- 
ment. The  state  franchise  tax  was  still  to  be  computed  on  the 
"net  income"  of  the  corporation  for  the  "preceding"  year  as  "re- 


WHAT   IS   NET   INCOME?  89 

turned"  to  the  federal  government.  Errors  or  inaccuracies  of  fact 
could  be  changed  (such  changes  as  the  federal  administrative  au- 
thorities themselves  could  make),  but  the  underlying  method  of 
arriving  at  net  income  found  in  the  federal  laws  which  set  forth 
specifically  the  deductions  permitted  from  gross  income,  was  still 
retained  by  the  state  law.  Whatever  was  "net  income"  and  was 
reported  as  such  under  federal  laws  was  basically  the  "net  income" 
under  the  state  law. 

The  state  was  not  taxing  income  at  all,  but  was  assessing  a  state 
franchise  privilege  by  a  single  tax  on  the  value  of  the  exercise 
of  the  corporate  franchise  within  the  state  for  the  previous  year, 
with  no  concern  of  the  amount  of  tax  a  corporation  had  paid  to 
the  federal  government  whose  jurisdiction  to  tax  was  a  matter 
wholly  apart  from  the  state's  right  to  tax  that  corporation. 

The  court's  ruling. — The  issue  was  finally  presented  to  the 
Appellate  Division  of  the  Third  Department,  in  People  ex  rel. 
Barcalo  Manufacturing  Company  v.  ^Knapp  and  People  ex  rel. 
American  Broom  &  Brush  Company  v.  Knapp,  et  al.,  etc.,  in  April, 
1919,  and  decided  in  favor  of  the  State.  Justice  Woodward  saying 
in  the  opinion  of  the  Court : 

"The  rule  seems  entirely  simple.  The  presumption  is  that  the 
'entire  net  income'  returned  by  the  corporation  to  the  United  States 
treasury  department  is  the  real  net  income  of  the  corporation.  If  the 
corporation,  in  its  return  to  the  State,  finds  that  it  has  erroneously 
stated  any  fact  in  its  report  to  the  United  States  it  is  privileged  to 
state  the  amount  claimed  by  it  to  be  the  net  income,  and  the  state  tax 
commission  is  authorized  to  make  corrections  for  'fraud,  evasion  or 
errors'  so  that  the  actual  'entire  net  income'  for  the  year  involved 
shall  be  made  to  appear,  and  upon  this  basis  the  tax  of  3  per  cent,  is 
imposed  for  the  privilege  of  exercising  corporate  franchises  in  this 
state. 

"In  the  cases  now  before  us,  the  state  tax  commissioners  have  fol- 
lowed the  statute  literally;  they  have  taken  the  'entire  net  income' 
of  the  corporations  involved,  as  returned  to  the  United  States  treasury 
department,  and  no  questions  of  fraud  or  evasion  are  involved.  The 
relators  contend,  not  that  there  is  anything  wrong  with  their  returns 
to  the  United  States,  but  that  in  some  manner  the  United  States 
statutes  operate  to  change  the  law  as  it  appears  from  a  literal  read- 


90  THE   BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 


ing,  and  that  the  so-called  excess  profits  taxes  assessed  for  and  as  of 
the  year  1917  should  be  deducted  from  the  incomes  of  these  corpora- 
tions before  the  computation  of  the  state  franchise  tax  is  made,  and 
that  the  income  taxes  paid  to  the  federal  government  during  the 
year  1917  by  the  American  Broom  and  Brush  Company,  should  be  de- 
ducted from  its  income  before  such  computation  by  the  state 
commission  is  made. 

"But,  why?  This  is  not  an  income  tax;  it  is  a  franchise  tax.  It  is 
a  tax  for  the  privilege  of  doing  business  in  a  corporate  form  in  the 
State  of  New  York,  and  the  only  relation  of  the  federal  act  to  th 
statute  of  New  York  is  the  basis  for  the  computation  of  the  state  tax. 
It  provides  for  a  3  per  cent,  tax  upon  the  basis  of  the  'entire  net  in- 
come' of  the  corporation  as  shown  by  its  report  to  the  United  States 
government,  unless  such  income  is  erroneously  stated,  when  the  actual 
'entire  net  income'  as  determined  by  the  Tax  Commission  becomes 
the  foundation  of  the  assessment." 


», 


Entire  net  income  for  1918,  in  the  light  of  the  above  decision, 
would  seem  to  include  the  $2,000  exemption  allowed  each  corpora- 
tion under  the  1918  Federal  Act,  but  would  permit  a  deduction 
for  so  much  of  the  income  derived  from  obligations  of  the  United 
States  as  may  be  exempt  under  the  Federal  Act,  and  also  for  all 
income  from  state,  municipal,  farm  loan  bonds  and  dividends  o: 
stocks  of  corporations. 


CHAPTER  XIV. 

FOREIGN  CORPORATIONS. 

i.     Doing  business  in  this  State. 

That  capital  be  employed  within  the  State  in  order  to  subject 
a  foreign  corporation  to  assessment  of  the  income  tax  under  the 
Act  of  1917  and  the  amendatory  legislation  since  enacted  is  of  con- 
sequence only  in  regard  to  the  apportionment  of  the  earnings  of  a 
corporation  doing  business  in  this  and  in  other  States  according  to 
the  ratio  of  its  realty,  stocks  of  merchandise,  and  accounts  receiv- 
able located  here  to  the  totals  of  those  items  of  assets  wherever  lo- 
cated. See  Section  214. 

"Business  is  a  very  comprehensive  term,  and  embraces  every- 
thing about  which  a  person  can  be  employed." 

Flint  v.  Stone  Tracy  Co.  220  U.  S.  107;  People  ex  rel.  Hoyt  v. 
Tax  Commissioners,  23  N.  Y.  244.  There  is  a  difference  between 
"engaged  in  business"  sufficiently  to  confer  by  service  of  process 
jurisdiction  on  a  court  and  "doing  business"  in  the  sense  that 
confers  jurisdiction  on  the  Tax  Commission  to  assess  a  tax. 

In  Tanza  v.  Susquehanna  Coal  Co.,  220  N.  Y.  259,  it  was  held 
of  a  corporation  having  its  principal  office  and  its  coal  yards  in 
Pennsylvania,  and  a  sales  office  in  New  York,  orders  obtained  by 
which  were  subject  to  the  confirmation  of  the  Philadelphia  office  to 
which  all  payments  by  the  customers  were  made,  that  the  company 
was  doing  business  within  this  state  in  such  a  sense  and  to  such  a 
degree  as  to  subject  it  to  the  jurisdiction  of  our  courts.  This  was 
on  the  authority  of  International  Harvester  Co.  v.  Kentucky,  234 
U.  S.  579  and  Green  v.  Railway  Co.,  205  U.  S.  530. 

But  in  International  Text  Book  Co.  v.  Tone,  220  N.  Y.  313,  it 
was  held  that  a  correspondence  school  fulfilling  its  contracts  by 

91 


92  THE   BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 

transmitting  information  through  the  mails  was  doing  nothing  in 
New  York  except  in  furtherance  of  interstate  commerce  in  main- 
taining division  agencies  here,  and  could  not  be  subjected  to  a 
license  tax  by  reason  of  maintaining  those  agencies. 

2.     Doing  local  business  in  connection  with  interstate  com- 
merce. 

Transporting  freight,  communication  by  telegraph  or  telephone, 
and  sales,  purchases  and  shipments  of  goods  between  states  are 
operations  of  interstate  commerce.  As  such  they  are  beyond  the 
reach  of  restrictions,  exactions,  license  taxes,  business  taxes,  and 
occupation  taxes.  No  state  can  interfere  with  the  enforcement  by 
a  foreign  corporation  of  its  sales  contracts  with  citizens  of  the 
state  for  goods  to  be  shipped  from  outside  the  state.  A  license 
tax  may  not  be  exacted  for  the  operation  of  an  interstate  ferry. 
Savage  v.  Atlanta  Home  Ins.  Co.,  55  App.  Div.  20.  Keeping  an 
office  to  show  samples  is  not  "doing  business"  in  a  state,  since 
using  samples  like  employing  salesmen  is  a  means  of  carrying  on 
interstate  commerce.  Cheney  Bros.  v.  Massachusetts)  246  U.  S. 
147;  McCall  v.  California,  136  U.  S.  104;  Crenshaw  v.  Arkansas, 
227  U.  S.  389 ;  International  Text  Book  Co.  v.  Begg,  217  U.  S.  92. 

Selling  goods  through  a  commission  house  is  not  doing  business 
although  the  commission  merchants  are  in  effect  a  substitution  for 
a  selling  agency  given  up  to  escape  a  tax  on  capital  employed  in  this 
state.  People  ex  rel.  So.  Cotton  Oil  Co.  v.  Roberts,  131  N.  Y.  64, 
25  App.  Div.  13.  On  the  other  hand,  keeping  a  sales  office  with  a 
resident  manager  is  local  business  falling  within  the  taxing  power 
of  the  state.  Sending  machines  into  a  state,  to  sell,  try,  rent;  buy- 
ing, exchanging  and  selling  machines  of  another  make;  keeping  a 
mechanic  to  make  repairs,  and  a  stock  of  parts  and  supplies,  is 
doing  business.  Datton  Adding  Machine  Co.  v.  Virginia,  246  U.  S. 
498;  118  Va.  563.  Various  operations,  such  as  hiring  laborers  to 
dig  ditches,  and  build  and  paint  foundations  in  installing  an  elec- 
tric signal  system,  repairing  and  selling  second  hand  motor  cars, 
keeping  a  stock  of  type  setting  machine  parts  for  repair  ord( 


lers, 


FOREIGN   CORPORATIONS  93 

keeping  a  garage  and  service  station,  keeping  an  office  from  which 
solicitors  from  retailers  of  orders  to  be  rilled  by  jobbers  are  sent, 
keeping  an  office  under  a  provision  in  the  corporate  charter  for 
distributing  in  dividends  the  proceeds  of  a  foreign  mining  and 
smelting  business,  have  been  held  to  be  "doing  business"  locally 
and  subject  to  state  taxation, — General  Railway  Signal  Co.  v.  Vir- 
ginia, 246  U.  S.  500,  118  Va.  301;  Locomobile  Co.  v.  Massachu- 
setts, 246  U.  S.  146,  38  S.  C.  E.  298,  228  Mass.  117;  Lanston 
Monotype  Case,  246  U.  S.  147;  Northwestern  Consolidated  Mill- 
ing Case,  245  TJ.  S.  644,  38  S.  C.  297;  Champion  Copper  Co.  v. 
Mass.,  246  U.  S.  147,  38  S.  C.  E.  297;  White  Co.  v.  Mass.,  Idem., 
but  state  taxation  for  the  privilege  of  doing  a  local  business  based 
on  the  total  capitalization  of  the  foreign  corporation  and  with 
no  provision  for  a  maximum  tax  to  prevent  an  arbitrary  and 
unreasonable  result,   disproportionate  to  the  local  business  done 
and  capital  employed  or  invested  locally  is  invalid  because  it  is 
a  direct  burden  upon  interstate   commerce  and  an  interference 
with  it.     Statutes  of  Massachusetts,  Oklahoma  and  Texas  have 
been  condemned  in  the  Federal  Supreme  Court  on  this  ground. 
In  Looney  v.  Crane,  245  U.  S.  178,  a  foreign  corporation  had  a 
capital   and   surplus   account   all   told   of   $25,000,000,    and   had 
only  $300,000  employed  in  Texas  in  a  warehouse  and  the  goods 
therein.     It  was  taxed  $17,000  for  the  privilege  of  doing  busi- 
ness in  Texas  in  lieu  of  $200  under  the  previous  statute.     In 
International  Paper  Co.  v.  Massachusetts,  246  U.  S.  135,  a  tax 
of  $5,500  on  a  foreign  corporation  which  had  only  2%  of  its  as- 
sets and   did  only  14%   of  its  business  in  the   State  was  pro- 
nounced unconstitutional,  because  the  law  under  which  it  was  im- 
posed did  not  contain,  as  did  a  former  act  held  valid,  a  restriction 
to  a  maximum  tax  of  $2,500.     A  tax  on  gross  earnings  even  has 
been  upheld,  when  expression  of  the  intention  to  avoid  burdening 
interstate  commerce  as  such  is  embodied  in  a  statutory  provision 
that  it  should  be  in  lieu  of  all  other  taxes  whether  on  property 
or  otherwise.    Cudahy  Packing  Co.  v.  Minn.,  246  U.  S.  450;  Myer 
v.  Wells  Fargo  &  Co.,  223  U.  S.  298. 


94  THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

3.     Local  business  taxed  in  proportion  to  goods  and  accounts 
here  located. 

On  the  face  of  it,  the  New  York  Income  Tax  Law  of  1917  does 
not,  even  in  any  extreme  instance,  present  any  -unconstitutional 
interference  with  interstate  commerce.  No  constitutional  obstacle 
will  be  encountered  in  levying  a  tax,  the  apportionment  of  which 
as  to  local  business  done  here  is  based  upon  stocks  of  goods,  either 
manufactured  here  or  sold  here,  and  bills  receivable  for  such  stock 
of  goods,  with  the  item  added  of  services  rendered  under  the  head- 
ing of  bills  receivable.  This  last  factor  in  the  apportionment,  will 
cover  the  cases  of  corporations  engaged,  for  instance,  in  construc- 
tion work,  or  engineering  contracting,  organized  in  another  State 
but  deriving  income  within  this  State.  The  credits  and  accounts 
receivable,  carried  on  the  books  of  such  a  corporation,  would  not 
proceed  from  stocks  of  material  or  goods  manufactured  in  New 
York  or  sold  in  New  York,  or  carried  in  New  York  warehouses. 
Such  corporations  do  not  make  or  sell  their  materials,  they  put 
them  together  and  leave  them  in  a  permanent  location.  Their 
profits  could  not  be  credited  to  the  manufacture  or  sale  of  tangible 
personal  property,  but  would  fall  logically  and  accurately  within 
the  description  of  "services  performed"  under  an  engineering  or 
construction  contract.  The  item  of  bills  receivable  for  services  per- 
formed would  also  apply  to  a  commission  business  for  which  an 
office  is  maintained  within  the  State. 


4.     The  Wisconsin  income  tax  case. 

The  Wisconsin  Income  Tax  Law  of  1911  (Section  1087  M. 
undertook  to  tax  non-residents  "upon  income  derived  from  sources 
within  the  State,"  with  a  proviso  that  any  person  engaged  in  busi 
ness  within  and  without  the  State  shall  be  taxed  only  upon  the 
proportion  of  the  income  derived  from  business  transacted  and  prop- 
erty located  within  the  State. 

In  U.  S.  Glue  Co.  v.  Oak  Creek,  161  Wis.  211,  it  was  held  that 
income  of  a  domestic  corporation  from  goods  owned  by  it  purchased 
outside  the  State  and  shipped  either  from  the  seller,  or  from  a  f: 
tory  in  Wisconsin,  to  its  branch  houses  in  other  states,  and  thenc 


„ 


FOREIGN   CORPORATIONS  95 

sold  and  delivered  to  customers  outside  the  State,  is  a  separable 
class  of  income,  and  that  such  business  is  transacted  and  located 
without  the  State.  The  incidental  management  from  the  home 
office  in  Wisconsin  and  the  accounting  for  the  proceeds  to  it,  does 
not  make  it  taxable  in  Wisconsin. 

In  the  same  case,  the  point  was  raised  and  decided  as  to  the  con- 
stitutionality of  taxing  income  derived  from  goods  sold  to  cus- 
tomers outside  the  State  from  branch  offices  maintained  outside 
the  State,  from  the  standpoint  of  levying  a  tax  upon  transactions  in 
interstate  commerce.  The  court  held  "the  manufacture,  the  man- 
agement, and  the  conduct  of  the  business  at  the  home  office  are  the 
controlling  features  in  the  process  of  disposing  of  the  article  and 
constitute  the  source  out  of  which  the  income  issues,  and  give  it  a 
situs  within  the  State  under  the  Income  Tax  Law." 

The  reasoning  of  the  court  was  in  substance  as  follows:  That 
the  income  tax  is  not  a  tax  on  property  as  such,  but  is  a  tax  on  the 
income  under  the  amendment  of  the  Constitution  of  Wisconsin; 
that  the  income  tax  law  did  not  seek  to  reach  property  or  an  interest 
in  property  as  such,  but  to  reach  incomes  having  either  a  situs 
within  the  State  or  a  source  within  the  State;  that  income  is  the 
net  result  of  many  combined  elements,  of  which  the  manufacture, 
the  management  and  conduct  of  the  business  at  the  home  office 
are  essential  and  controlling,  and  that  the  different  elements  are 
not  absolutely  separable,  and  that  it  is  no  objection  to  taxing  in- 
come produced  in  part  from  the  profits  of  business  conducted 
through  branch  offices  in  other  states,  and  dealings  at  the  branch 
offices  with  customers  in  other  states,  that  it  came  from  property 
of  itself  non-taxable. 

This  case  distinguished  the  Philadelphia  &  8.  8.  Co.  v.  Penn- 
sylvania, 122  U.  S.  326,  where  a  tax  levied  on  the  gross  receipts 
of  a  steamship  company  for  interstate  freight  was  held  to  be  a  tax 
upon  interstate  commerce,  and  therefore  invalid,  and  it  relied  for 
the  distinction  on  Flint  v.  Stone  Tracy  Co.,  220  U.  S.  107,  to  the 
effect  that  it  is  no  valid  objection  to  the  standard  of  measuring 
a  privilege  tax,  that  there  is  included  within  the  standard,  as  part 
of  it,  property  which  as  such,  could  not  be  directly  taxed. 


96  THE  BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 

For  the  affirmance  in  the  United  States  Supreme  Court  on  June 
3d,  1918,  Justice  Pitney.,  in  writing  the  opinion,  quoted  from 
Postal  Telegraph  Cable  Co.  v.  Adams,  155  U.  S.  688,  695-696,  as 
follows : 

"But  property  in  a  State  belonging  to  a  corporation,  whether  for- 
eign or  domestic,  engaged  in  foreign  or  interstate  commerce,  may  be 
taxed,  or  a  tax  may  be  imposed  on  the  corporation  on  account  of  its 
property  within  a  State,  and  may  take  the  form  of  a  tax  for  the  priv- 
ilege of  exercising  its  franchises  within  the  State,  if  the  ascertainment 
of  the  amount  is  made  dependent  in  fact  on  the  value  of  its  property 
situated  within  the  State  (the  exaction,  therefore,  not  being  susceptible 
of  exceeding  the  sum  which  might  be  leviable  directly  thereon),  and  if 
payment  be  not  made  a  condition  precedent  to  the  right  to  carry  on 
the  business,  but  its  enforcement  left  to  the  ordinary  means  devised  for 
the  collection  of  taxes." 

In  another  portion  of  his  opinion,  in  pointing  out  the  distinction 
between  a  tax  which  is  a  direct  burden  on  interstate  commerce, 
and  one  which  is  an  indirect  burden,  he  says: 

"The  correct  line  of  distinction  is  so  well  illustrated  in  two  cases 
decided  at  the  present  term  that  we  hardly  need  go  further.  In 
Crew  Levick  Co.  v.  Pennsylvania,  245  U.  S.  292,  we  held  that  a  state 
tax  upon  the  business  of  selling  goods  in  foreign  commerce,  measured 
by  a  certain  percentage  of  the  gross  transactions  in  such  commerce, 
was  by  its  necessary  effect  a  tax  upon  the  commerce,  and  at  the  same 
time  a  duty  upon  exports,  contrary  to  sections  8  and  10  of  Article  I 
of  the  Constitution,  since  it  operated  to  lay  a  direct  burden  upon 
every  transaction  by  withholding  for  the  use  of  the  State  a  part  of 
every  dollar  received.  On  the  other  hand,  in  Peck  &  Co.  v.  Lowe,  Col- 
lector, decided  May  20th  last,  ante,  p. ,  we  held  that  the  Income 

Tax  Act  of  October  3d,  1913,  Chap.  16,  Sec.  2,  38  Stat.  166,  172,  when 
carried  into  effect  by  imposing  an  assessment  upon  the  entire  net  in- 
come of  a  corporation  approximately  three-fourths  of  which  was  de- 
rived from  the  export  of  goods  to  foreign  countries,  did  not  amount  to 
laying  a  tax  or  duty  on  articles  exported  within  the  meaning  of  Art. 
I,  Sec.  9,  cl.  5,  of  the  Constitution. 

"The  distinction  between  a  direct  and  an  indirect  burden  by  way  of 
tax  or  duty  was  developed,  and  it  was  shown  that  an  income  tax  laid 
generally  on  net  incomes,  not  on  income  from  exportation  because  of 
its  source  or  in  the  way  of  discrimination,  but  just  as  it  was  laid  on 
other  income,  and  affecting  only  the  net  receipts  from  exportation 


FOREIGN   CORPORATIONS  97 

after  all  expenses  were  paid  and  losses  adjusted  and  the  recipient  of 
the  income  was  free  to  use  it  as  he  chose,  was  only  an  indirect  burden. 

"The  difference  in  effect  between  a  tax  measured  by  gross  receipts 
and  one  measured  by  net  income,  recognized  by  our  decisions,  is  mani- 
fest and  substantial,  and  it  affords  a  convenient  and  workable  basis 
of  distinction  between  a  direct  and  immediate  burden  upon  the  busi- 
ness affected  and  a  charge  that  is  only  indirect  and  incidental.  A  tax 
upon  gross  receipts  affects  each  transaction  in  proportion  to  its  mag- 
nitude and  irrespective  of  whether  it  is  profitable  or  otherwise.  Con- 
ceivably it  may  be  sufficient  to  make  the  difference  between  profit  and 
loss,  or  to  so  diminish  the  profit  as  to  impede  or  discourage  the  con- 
duct of  the  commerce.  A  tax  upon  the  net  profits  has  not  the  same 
deterrent  effect,  since  it  does  not  arise  at  all  unless  a  gain  is  shown 
over  and  above  expenses  and  losses,  and  the  tax  cannot  be  heavy  unless 
the  profits  are  large.  Such  a  tax,  when  imposed  upon  net  incomes 
from  whatever  source  arising,  is  but  a  method  of  distributing  the  cost 
of  government,  like  a  tax  upon  property,  or  upon  franchises  treated 
as  property;  and  if  there  be  no  discrimination  against  interstate  com- 
merce, either  in  the  admeasurement  of  the  tax  or  in  the  means  adopted 
for  enforcing  it,  it  constitutes  one  of  the  ordinary  and  general  bur- 
dens of  government,  from  which  persons  and  corporations  otherwise 
subject  to  the  jurisdiction  of  the  States  are  not  exempted  by  the  Fed- 
eral Constitution  because  they  happen  to  be  engaged  in  commerce 
among  the  States. 

"And  so  we  hold  that  the  Wisconsin  income  tax  law,  as  applied  to 
the  plaintiff  in  the  case  before  us,  cannot  be  deemed  to  be  so  direct  a 
burden  upon  the  plaintiff's  interstate  business  as  to  amount  to  an  un- 
constitutional interference  with  or  regulation  of  commerce  among  the 
States.  It  was  measured  not  by  the  gross  receipts,  but  by  the  net 
proceeds  from  this  part  of  plaintiff's  business,  along  with  a  like  im- 
position upon  its  income  derived  from  other  sources,  and  in  the  same 
way  that  other  corporations  doing  business  within  the  State  are  taxed 
upon  that  proportion  of  their  income  derived  from  business  transacted 
and  property  located  within  the  State,  whatever  the  nature  of  their 
business.  Judgment  affirmed." 

This  opinion  has  been  quoted  here  at  length  because  it  is  the 
last  word  emanating  from  the  Supreme  Court  of  the  United  States, 
on  this  subject,  and  also  because  it  is  directly  concerned  with  an 
income  tax  very  similar  in  its  application  to  that  of  the  New  York 
franchise  tax  on  the  net  income  of  corporations. 


98  THE  BUSINESS   CORPORATION'S   TAX    (ART.    9-A) 

5.     Connecticut  income  tax  case. 

The  Connecticut  Income  Tax  Law,  which  is  substantially  like 
the  New  York  statute,  imposes  a  tax  of  two  per  cent,  on  the  net 
income  of  miscellaneous  corporations  based  on  their  return  made  to 
the  United  States  Treasury  Department.  It  affects  practically  the 
same  class  of  corporations  that  is  comprehended  uqder  the  New 
York  Law.  The  Connnecticut  Law  was  passed  in  1915,  constitut- 
ing Part  4,  Chapter  292  of  the  Public  Acts  of  1915,  and  was 
amended  by  Chapter  298  of  the  Public  Acts  of  1917.  This  law 
came  before  the  Connecticut  courts  in  the  case  of  Underwood  Type- 
writer Co.  v.  Chamberlain,  102  Atlantic,  600  (December,  1917). 
In  that  case,  the  appellant,  Underwood  Typewriter  Company,  a 
Delaware  corporation,  had  its  principal  office  in  Wilmington,  Dela- 
ware ;  its  main  office  was  in  New  York  City,  where  it  contended  that 
it  was  engaged  in  interstate  commerce;  its  manufacturing  plant 
was  in  Hartford,  Connecticut,  the  larger  part  of  its  property  and 
assets  was  located  beyond  the  limits  of  Connecticut,  but  a  large 
part  of  its  tangible  personal  property  and  real  estate  was  located  in 
Connecticut  and  was  used  there  for  manufacturing  purposes.  The 
appellant's  contention  was  that  the  State  of  Connecticut,  under 
the  guise  of  a  franchise  or  privilege  tax,  could  not  impose  a  tax 
upon  a  foreign  corporation,  measured  by  its  income  from  inter- 
state commerce,  although  nearly  one-half  of  its  real  estate  and 
tangible  personal  property  was  located  in  Connecticut.  While  this 
was  the  question  presented  by  the  complaint,  the  State  of  Con- 
necticut raised  by  demurrer,  the  point  that  plaintiff  had  volun- 
tarily paid  the  tax  demanded,  and  that  if  one  pays  an  alleged  un- 
constitutional tax  on  demand,  the  amount  cannot  be  recovered. 
The  latter  point  was  decided  in  favor  of  the  contestant  without 
involving  the  decision  of  the  question  as  to  the  validity  of  the  law, 
the  court  holding  that  the  plaintiff's  payment  of  the  tax  under 
protest  was  not  a  voluntary  payment  but  a  payment  under  duress. 

In  view  of  the  decision  of  the  United  States  Supreme  Court  in 
U.  8.  Glue  Co.  v.  Town  of  Oak  Creek,  cited  supra,  it  may  be 
doubted  whether  the  main  ground  of  appeal  has  not  been  covered 
by  the  decision  of  the  Federal  Court  of  last  resort. 


CHAPTER  XV. 

REPORTS  OF  CORPORATIONS,  SEGREGATION  OF  ASSETS. 

Domestic  corporations. 

Under  Section  211,  every  corporation  taxable  under  Article  9-a, 
is  required  to  transmit  to  the  State  Tax  Commission,  a  report  of 
its  taxable  condition.  Under  Section  209,  every  domestic  cor- 
poration except  those  expressly  specified  in  Section  210,  is  taxable, 
and  if  it  be  assumed  that  those  corporations.,  not  dissolved,  are 
exercising  or  capable  of  exercising  their  corporate  franchises,  it  is 
incumbent  on  them  to  file  reports.  The  word  "taxable"  is  used 
in  the  statute  in  the  sense  of  liable  to  taxation.  The  law  will  infer 
(in  the  absence  of  proof  to  the  contrary)  that  capital  invested  in 
business  yields  an  income,  and  that  a  domestic  corporation  is  a 
"stock"  corporation.  McLean,  Receiver  of  Taxes  v.  Julien  Elec. 
Co.,  28  Abb.  N.  C.  349.  It  has  also  been  held  in  connection  with 
the  construction  of  a  similar  term  such  as  "corporation  deriving  an 
income  or  profit,"  that  it  applies  to  every  moneyed  or  stock  corpora- 
tion organized  for  the  purpose  of  acquiring  income  or  profit,  and 
does  not  apply  to  financial  condition. 

In  connection  with  Federal  reports  it  has  been  held  that  the 
duty  to  make  returns  depends  upon  corporate  or  associational 
existence  and  not  upon  the  receipt  of  income. 

Treasury  Decision  2090,   December   14,   1914. 

Article  9-a  provides  for  the  payment  of  a  tax  by  a  "domestic 
corporation  for  the  privelege  of  exercising  its  franchise  in  this 
state  in  a  corporate  or  organized  capacity,"  and  this  does  not  mean 
actively  engaged  in  business,  nor  does  it  mean  that  the  corpora- 
tion need  be  in  receipt  of  a  gross  or  net  income,  for,  under  the 
last  paragraph  of  Section  214  there  is  a  minimum  tax  of  $10  irre- 
spective of  whether  the  corporation  earns  anything  or  not.  In  the 
imposition  of  the  federal  capital  stock  tax,  it  has  been  held  that 

99 


100  THE   BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 

corporations  discontinuing  active  business  and  simply  holding 
the  title  to  property  and  distributing  the  income,  are  not  "doing 
business." 

In  1916,  by  Chapter  333,  Laws  of  New  York,  there  was  an 
amendment  to  the  New  York  Franchise  Tax  Law  (Article  9),  as  it 
applied  to  domestic  corporations,  the  words  "exercising  its  cor- 
porate franchises"  being  substituted  for  fhe  words  "doing  business" 
in  the  act,  to  make  it  clear  that  the  tax  was  to  apply  to  domestic 
corporations  irrespective  of  whether  they  were  actively  engaged  in 
business  or  not.  This  followed  the  decision  in  People  ex  rel.  Le- 
high  &  N.  Y.  R.  R.  Co.  v.  William  Sohmer,  217  N.  Y.  443. 

Corporations  discontinuing  business  on  or  before  October  31st  in 
any  year  are  not  liable  for  taxation  because  the  tax  is  payable  in 
advance  for  the  year  beginning  November  1st.  No  tax  is  refund- 
able if  a  corporation  ceases  to  do  business  during  the  year.  In  this 
respect  it  follows  the  capital  stock  tax  under  the  Federal  law  (See 
Art.  1,  Eegulator  38,  Capital  Stock  Tax). 

Foreign  corporations. 

Respecting  foreign  corporations,  Section  211  provides  that 
"every  corporation  taxable  under  this  article,  as  well  as  foreign 
corporations  having  officers,  agents  or  representatives  within  the 
State"  shall  transmit  to  the  Tax  Commission,  a  report.  Section 
209  provides  that  "for  the  privilege  of  doing  business  in  this  State, 
every  foreign  corporation,  except  corporations  specified  in  the 
next  section"  (210),  shall  pay  an  annual  franchise  tax. 

"Doing  business"  as  a  general  rule  means  maintaining  an  office 
and  employing  capital,  but  the  statute  evidently  contemplates  the 
making  of  a  report  by  a  foreign  corporation  in  cases  beyond  this, 
namely,  where  there  is  a  resident  agent  or  representative  within 
the  State,  and  where  no  capital  may  be  employed  otherwise  than 
in  furnishing  material  or  rendering  services.  N.  Y.  Terra-Cotta 
Co.  v.  Williams,  102  App.  Div.  1,  afFd  184  N.  Y.  579.  Conse- 
quently not  only  foreign  corporations  liable  to  taxation,  viz.,  those 
that  are  engaged  in  business  within  this  State,  but  those  which, 
while  not  engaged  in  business,  have  officers,  agents  or  representa- 
tives within  the  State,  must  file  a  report  under  this  article. 


REPORTS  OF  CORPORATIONS,  SEGREGATION  OF  ASSETS    101 

Under  Section  15  of  the  Stock  Corporation  Law,  "no  foreign 
stock  corporation  other  than  moneyed  corporations,  shall  do  busi- 
ness in  this  State  without  having  first  procured  from  the  Secretary 
of  State  its  certificate  that  it  has  complied  with  all  the  require- 
ments of  law  to  authorize  it  to  do  business  in  this  State."  Clearly, 
every  foreign  corporation  obtaining  such  certificate  must  also  file  a 
report  under  Article  9-a  of  the  Tax  Law. 

When  report  is  to  be- made. 

Under  Section  211,  reports  must  be  filed  on  or  before  July  1st 
in  each  year  or  within  thirty  days  after  making  the  corporate 
Federal  Tax  Reports  for  any  fiscal  or  calendar  year.  Blank  forms 
are  sent  to  corporations  by  the  State  Tax  Department  during  the 
month  of  June.  The  non-receipt  of  a  blank  form  does  not  excuse 
a  corporation  from  making  a  report.  If  a  corporation  has  neglected 
or  failed  to  make  its  Federal  report,  it  will  not  be  excused  from 
making  a  report  (Section  213)  to  the  New  York  State  Tax  Com- 
mission, but  it  must  (even  though  the  time  limited  therefor  has 
expired),  either  file  its  Federal  Eeport  and  make  a  State  Tax  Re- 
port under  this  Article  within  thirty  days  thereafter,  or  else  com- 
pute its  income  and  then  make  and  file  the  State  report.  Under 
I.  T.-Mim.  2129  the  time  for  filing  corporation  reports  for  1918  has 
been  extended  to  June  15,  1919,  which  extends  the  time  for  -filing 
the  New  York  reports  until  July  15,  1919.  T.  D.  2856,  June  7, 
1919,  permits  a  further  extension  until  July  15  for  "corporations 
other  than  personal  service  corporations  having  a  fiscal  year  ending 
Jan.  31,  Feb.  28,  or  March  31,  1919."  This  would  extend  the  time 
for  filing  the  state  return,  in  the  case  of  these  corporations,  until 
August  15,  1919. 

The  time  for  filing  State  reports  may  be  extended  on  applica- 
tion to  the  State  Tax  Commission,  under  Section  217,  for  good 
cause  shown,  and  it  may  be  assumed  that  such  extension  would 
preclude  a  default  and  bar  the  penalties  under  the  law. 

Form  of  report. 

The  form  of  report  under  the  amendments  of  1918  showed  sev- 
eral important  changes.  The  State  was  no  longer  concluded  by 


102  THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

the  corporation's  return  to  the  United  States  Treasury  Depart- 
ment in  case  of  fraud,  error  or  evasion  and  "if  the  corporation 
shall  claim  that  the  return  made  to  the  United  States  Treasury 
Department  was  inaccurate,  the  amount  claimed  by  it  to  be  the 
net  income  for  such  period"  shall  be  specified  in  its  report  to  the 
State  Tax  Commission.  The  1919  amendments  provided  that  the 
"entire  net  income"  was  to  be  returned  without  deduction  for 
Federal  Taxes  or  losses  in  previous  years.  The  underlying  method 
of  arriving  at  net  income  employed  by  the  Federal  system  as  to 
deductions  from  gross  income  was  still  retained. 

The  duplication  of  accounts  receivable  for  goods  sold  and  for 
goods  manufactured  or  shipped  within  the  State  is  now  avoided 
by  more  appropriate  language.  Due  to  the  inapt  phraseology  of 
the  1917  statute,  corporations  were  obliged  to  duplicate  their  out- 
standing accounts  within  and  without  the  State,  but  as  the  gen- 
eral result  of  the  apportionment  of  assets  was  approximately  the 
same,  there  was  no  great  disadvantage  in  this.  This  defect  has 
been  cured  and  it  is  now  possible  for  a  manufacturing  corpora- 
tion to  apportion  its  outstanding  accounts  receivable  for  goods 
manufactured  by  it,  and  if  it  sell  goods  not  manufactured  by 
it,  they  may  be  classified  under  subdivision  (b). 

Through  an  oversight,  subdivision  5  of  Section  211  had  been 
entirely  omitted  from  the  1918  amendment.  This  subdivision  cov- 
ering the  average  value  of  shares  of  stock  of  other  corporations 
within  and  without  the  State  has  now  been  included  in  the  1919 
Act. 

This  omission  in  the  1918  Law  was  not  fatal,  since  Section 
213  points  out  the  Commission's  power  to  call  for  such  other  facts 
as  it  may  require,  for  the  purpose  of  making  the  computation  re- 
quired by  Article  9-a. 

Subdivision  6  of  Section  214,  furthermore  points  out  the  method 
of  allocating  within  and  without  the  State,  the  shares  of  stocks  of 
other  corporations  owned  by  the  reporting  company,  viz.,  "The 
value  of  the  share  stock  of  another  corporation  owned  by  a  cor- 
poration liable  hereunder,  shall  for  the  purposes  of  allocation  of 
assets  be  apportioned  in  and  out  of  the  State  in  accordance  with 


REPORTS  OF  CORPORATIONS,  SEGREGATION  OF  ASSETS    103 

the  value  of  the  physical  property  in  and  out  of  the  State  represent- 
ing such  share  stock."  This  is  substantially  in  accordance  with  the 
rule  laid  down  in  Section  182  of  the  Tax  Law,  applicable  to  cor- 
porations taxable  under  Article  9.  Under  this  rule  a  corporation 
owning  stock  of  the  New  York  Central  Railroad  Co.,  must  first 
ascertain  where  the  physical  property  represented  by  that  stock  is 
located,  and  apportion  its  stock  within  and  without  the  State  ac- 
cordingly. If  it  is  not  in  possession  of  this  information,  it  may 
obtain  it  from  the  State  Tax  Commission.  The  reporting  corpora- 
tion must  return  in  its  report  all  the  stock  of  other  corporations, 
that  it  owns,  and  not  an  amount  equal  to  10  per  cent,  of  the  aggre- 
gate of  real  and  tangible  personal  property.  If  the  corporation 
owns  100  shares  of  railroad  company  stock,  whose  actual  average 
monthly  value  throughout  the  year  was  $90  per  share  and  40  per 
cent,  of  the  railroad  company's  physical  property  was  in  the  State, 
it  must  allocate  in  the  column  of  total  assets  wherever  located, 
opposite  the  item  of  average  total  value  of  shares  of  stocks,  the 
amount  $9,000,  and  in  the  corresponding  column  of  assets  in  New 
York  State,  the  amount  $3,600  (40  per  cent,  of  the  total  of 
$9,000).  The  amount  apportioned  to  these  respective  items  of 
only  10  per  cent,  of  the  real  and  tangible  personal  property,  win 
be  filled  in  by  the  State  Tax  Commission. 

Segregation  of  assets. 

Section  209  provides  for  "an  annual  franchise  tax  to  be  com- 
puted by  the  Tax  Commission  upon  the  basis  of  its  entire  net  in- 
come for  its  fiscal  or  calendar  year  next  preceding,  as  hereinafter 
provided,  which  entire  net  income  is  presumably  the  same  as  the 
entire  net  income  upon  which  such  corporation  is  required  to  pay 
a  tax  to  the  United  States." 

The  sections  to  which  the  words  "hereinafter  provided"  have  ref- 
erence, are  Sections  211  and  214,  Section  211  calling  for  the  facts 
to  be  stated  in  the  report  and  Section  214  showing  the  method  of 
computation  on  the  basis  of  the  facts  so  reported.  The  law  evi- 
dently contemplates  that  a  corporation  transacting  an  interstate 
business  as  distinguished  from  an  intrastate  business,  shall  have 


104  THE   BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 

the  benefit  of  the  apportionment  of  the  net  income  referred  to. 
Much  of  the  confusion  that  has  arisen  in  connection  with  the 
segregation  of  assets  has  been  occasioned  by  the  difficulty  of  fixing 
the  situs  of  accounts  for  merchandise  sold  by  a  corporation  doing 
an  interstate  business,  having  no  warehouse  or  factory  in  the  State 
of  New  York.  Such  corporations,  while  maintaining  an  agency 
or  offices  outside  of  the  State,  will,  as  a  rule,  carry  their  outstanding 
accounts  on  the  books  of  the  New  York  office,  although  much  of 
the  business  arises  from  sales  made  by  agencies  or  offices  main- 
tained outside  of  the  State.  Some  of  the  goods  never  come  within 
the  State  at  all.  A  few  examples  will  suffice  to  show  the  difficulty 
of  segregating  assets  in  such  cases: 

Cotton  converting  company:  In  the  City  of  New  York  there 
are  a  large  number  of  so-called  cotton  converting  corporations  who 
will  contract  with  mills  in  the  South  or  New  England,  for  a  certain 
quantity  of  unfinished  goods  to  be  woven,  shrunk  or  converted. 
They  will  order  these  goods  at  the  mills  in  the  South  or  New  Eng- 
land, and  send  them  down  to  a  bleachery  to  have  them  dyed  and 
finished.  Very  often  an  office  is  maintained  at  such  places  and 
orders  received,  or  else  travelling  agents  will  sell  these  goods  and 
the  orders  are  filled  and  shipped  from  the  agencies  outside  of  the 
state.  The  goods  are  insured  at  the  places  located  outside  of  the 
state,  in  the  name  of  the  corporation  and  under  the  law  they  own 
these  goods  which  are  located  outside  of  the  state  at  the  time  of 
sale,  and  the  bills  and  accounts  receivable  for  them  are  located 
outside  of  the  state  and  not  in  the  state. 

Cotton  converting  corporation  selling  from  New  York 
office:  A  domestic  corporation  selling  all  its  merchandise  from 
its  New  York  office  is  engaged  in  the  business  of  buying,  selling 
and  converting  cotton  goods.  Its  merchandise  is  manufactured 
outside  the  state  and  is  all  delivered  from  outside  the  state.  None 
of  it  comes  to  New  York  State.  All  the  sales  are  made  from  the 
New  York  office,  where  buyers  come  and  make  their  purchases 
from  samples.  The  corporation  pays  a  nominal  rent  for  space  in 
.the  warehouses  or  mills  outside  the  State  where  its  goods  are  kept 


EEPORTS  OF  CORPORATIONS,  SEGREGATION  OF  ASSETS    105 

and  it  carries  insurance  on  the  merchandise  there  held.  Its  state 
tax  is  computed  by  allocating  to  New  York  State  all  of  the  bills 
and  accounts  receivable  and  by  segregating  outside  the  state  all  of 
the  tangible  personal  property  excepting  furniture  and  fixtures. 

Coal  company :  Another  instance  is  that  of  a  coal  company  buy- 
ing and  selling  coal  at  wholesale  with  a  New  York  City  office, 
another  sales  office  at  Boston,  Mass.,  and  one  in  Virginia  near  the 
coal  mines,  where  it  maintained  a  stock  of  coal  continuously  and 
a  general  shipping  and  distributing  office  in  charge  of  a  manager, 
and  where  the  entire  business  for  the  distribution  of  coal  was 
centered.  All  orders  were  billed  there,  none  of  the  coal  coming 
into  New  York  State,  most  of  the  sales  being  passed  on  in  New 
York  City  where  the  principal  financial  office  was  maintained.  This 
company  owned  no  mining  property  of  any  kind  and  all  of  the 
coal  was  located,  and  most  of  it  was  sold  by  its  agents  outside  of 
the  state,  the  prices  being  fixed,  in  most  instances,  from  the  New 
York  office.  The  difficulty  in  segregation  here  is  where  to  allocate 
coal  in  transit  and  the  outstanding  accounts  represented  by  the 
sales  made  outside  of  the  state,  made  through  the  New  York 
office  from  a  stock  of  coal  located  outside  of  the  state.  If  the  strict 
letter  of  law  be  followed,  all  of  the  accounts  will  be  located  outside 
of  the  state.  If,  on  the  other  hand,  the  fact  that  in  some  cases  the 
price  was  fixed  from  the  New  York  office,  be  made  controlling,  most 
of  the  accounts  will  be  allocated  to  New  York.  The  contracts 
being  accepted  or  closed  outside  of  the  state,  and  the  goods  being 
located  there,  the  accounts  would  seem  to  be  properly  allocated 
there.  The  fact  that  the  price  may  be  fixed  in  New  York  should 
not  be  a  determining  factor. 

Import  corporation:  A  corporation  engaged  in  trade  with  the 
East  Indies,  buying  crude  rubber,  spices,  pepper,  gums,  chemicals, 
etc.,  maintaining  its  principal  financial  office  in  New  York  City, 
but  having  a  shipping  and  distributing  agency  on  the  Pacific 
Coast  with  clerks  in  charge  where  the  goods  were  inspected  and  dis- 
tributed. Most  of  the  contracts  were  consummated  outside  of  the 
state  by  the  acceptance  of  offers  there  made.  Nearly  all  of  the 


106  THE  BUSINESS   CORPORATIONS  TAX    (ART.    9-A) 

sales  were  made  outside  of  the  country  and  only  a  small  portion 
of  the  goods  were  maintained  or  stored  in  New  York  State.  The 
doubtful  question  in  this  case  is  how  much  of  the  outstanding  ac- 
counts can  be  allocated  as  goods  in  transit  sold  from  the  New 
York  office,  since  only  a  relatively  small  portion  of  the  goods  came 
either  into  the  state  for  storage,  or  selling  purposes,  or  remained 
on  the  Pacific  Coast  for  like  purposes,  most  of  the  goods  being 
shipped  directly  from  outside  of  the  country  to  places  outside  of 
the  state.  The  financial  business  of  the  company  was  conducted 
here,  although  much  of  the  financing  was  done  through  the  offices 
of  London  Banks  having  agencies  in  the  East  Indies. 

Commission   merchant   maintaining   office   in   New   York: 

A  corporation  was  engaged  in  the  commission  business  with  an 
office  in  New  York  City  and  also  in  New  Jersey,  where  the  Presi- 
dent of  the  corporation  resided,  all  of  the  goods  being  sold  and 
shipped  from  factories  outside  of  the  state,  the  business  being  practi- 
cally a  one-man  concern.  The  New  York  office  had  a  few  office 
fixtures,  these  being  the  entire  tangible  property.  Under  these 
circumstances  and  because  the  business  was  entirely  a  commission 
business,  all  of  the  outstanding  accounts  were  allocated  to  New 
York  City,  the  corporation  being  a  domestic  corporation.  All  sales 
were,  however,  made  outside  of  the  state. 

Contracting  company:  A  corporation  engaged  in  selling  struc- 
tural steel  and  erecting  the  same  in  connection  with  contract  work. 
The  goods  were  made  in  Pittsburgh  and  sold  outside  of  the 
State  from  a  warehouse  where  they  were  kept,  the  contract  be- 
ing accepted  there.  The  outstanding  accounts  for  the  merchandise 
when  sold  by  corporations  doing  an  interstate  business,  are  allo- 
cated or  segregated  to  the  state  where  the  sales  are  made.  If  the 
goods  are  in  transit  from  New  York,  they  are  segregated  in  New 
York. 

Minimum  tax  provision:  A  further  important  change  in  the 
method  of  taxation  based  on  the  report,  is  that  calling  for  the 
amount  of  the  corporation's  issued  capital  stock  in  paragraph  (1) 
of  Section  211. 


REPORTS  OF  CORPORATIONS,  SEGREGATION  OF  ASSETS    107 

Under  the  minimum  tax  clause  in  paragraph  (6)  of  Section  214, 
it  is  provided  "that  every  domestic  corporation  exercising  its  fran- 
chise in  this  State  and  every  foreign  corporation  doing  business  in 
this  State,  other  than  those  exempted  by  Section  210  of  this 
chapter,  shall  be  subject  to  a  minimum  tax  of  not  less  than  ten 
dollars  and  not  less  than  one  mill  upon  each  dollar  of  the  appor- 
tionment of  the  face  value  of  its  issued  capital  stock  apportioned 
to  this  State,  which  shall  be  determined  by  dividing  the  amount 
of  the  real  and  tangible  personal  property  in  this  State  by  the  en- 
tire amount  of  the  real  and  tangible  personal  property  as  shown 
in  the  report,  and  multiplying  the  quotient  by  the  face  value  of 
the  issued  capital  stock.  If  such  a  corporation  has  stock  without 
par  value,  then  the  base  of  the  tax  shall  be  on  such  a  portion  of  its 
paid  in  capital  as  its  real  and  tangible  personal  property  in  this 
State  bears  to  its  entire  real  and  tangible  personal  property." 

The  minimum  tax  provision  questioned. — The  last  sentence 
of  this  paragraph  provides  that  a  corporation  organized  with 
stock  without  par  value  is  taxed  on  the  actual  value  of  the  prop- 
erty while  a  corporation  organized  with  stock  of  par  value  is 
taxed  on  the  face  value  of  the  issued  capital  stock.  For  example, 
a  corporation  with  a  capital  issued  stock  of  $1,000,000  par  value, 
all  employed  in  the  state,  having  no  net  income  for  the  taxable 
year,  must  pay  under  the  minimum  tax  provision  a  tax  of  $1,000, 
although  the  actual  value  of  its  property  in  the  state  is  only  worth 
$350,000.  If  it  had  been  organized  with  stock  without  par  value, 
then  the  amount  of  the  tax  paid  would  only  be  $350.  We  have, 
therefore,  in  the  same  paragraph  of  the  law  two  different  methods  of 
assessment  or  taxation.  If  the  corporation  with  stock  of  par  value 
is  assessed  on  the  higher  basis,  may  this  not  be  deemed  a  violation 
of  the  fourteenth  amendment  of  the  federal  constitution  guaran- 
teeing equal  protection  of  the  laws  for  all  persons  within  the  juris- 
diction? There  are  two  classifications  for  a  corporation  and  for 
the  same  property  in  which  a  different  tax  would  be  exacted  de- 
pendent upon  administrative  provisions  under  which  the  corpora- 
tion is  organized.  The  tax  in  question  being  a  franchise  or  busi- 


108  THE   BUSINESS   CORPORATIONS  TAX    (ART.    9-A) 

ness  tax  should  be  uniform  on  all  the  same  classes  or  subjects. 
Under  Section  182  (Article  9)  corporations  paying  no  dividends, 
with  stock  of  par  value,  are  taxed  in  the  same  manner  as  corpora- 
tions with  stock  of  no  par  value.  Has  the  State  the  right  to  change 
the  tax  dependent  purely  on  administrative  classification  by  a  cor- 
poration, irrespective  of  the  character  of  the  business,  or  the  class 
of  corporation? 

The  taxation  of  department  stores  according  to  the  number  of 
departments  was  held  unconstitutional  in  Missouri  because  it  was 
unwarranted  class  legislation  violative  of  the  natural  rights  of  the 
citizen.  State  ex  rel.  Ashlroolc,  154  Mo.  375  (1900).  The  Court 
said  in  that  case :  "To  have  made  the  act  apply  to  all  merchants 
of  a  given  avoirdupois  or  to  those  employing  clerks  of  a  designated 
stature,  or  to  those  doing  business  of  a  special  architectural  design, 
would  have  been  as  natural  and  as  reasonable  classification  for  the 
purposes  in  view  as  the  classification  made  by  the  act." 

Bells  Gap  Company  case:  On  the  other  hand  in  the  much- 
quoted  case  of  Bells  Gap  Co.  v.  Pa.,  134  U.  S.  32,  a  tax  arbitrarily 
placed  on  the  face  value  of  corporate  stocks  as  to  non-residents, 
regardless  of  actual  value,  and  on  actual  value  as  to  residents,  was 
sustained.  This  was  held  not  to  be  a  discrimination  on  the  ground 
that  the  face  value  of  stocks  as  to  non-residents  expressed  the  actual 
value. 

Illustration  of  report:  The  following  form  is  an  example 
of  a  report  of  a  corporation  doing  business  and  having  tangible 
assets  within  and  without  the  State,  operating  a  factory  without 
the  State,  capitalized  at  $1,000,000,  with  a  net  income  of  $20,000 
per  annum,  and  with  assets  segregated  as  follows : 

TOTAL  SEGREGATED  ASSETS  WHEREVER  LOCATED. 

(a)  Average  monthly  value  of  bills  and  accounts  receivable 

for  personal  property  manufactured  by  it $140,000 

(b)  Average  monthly  value  of  bills  and  accounts  receiv- 

able for  personal  property  sold  by  the  corporation 
from  merchandise  owned  by  it  at  the  time  of  ac- 
ceptance of  order  but  not  manufactured  by  it 40,000 


REPORTS  OF  CORPORATIONS,  SEGREGATION  OF  ASSETS    109 

(c)  Average  monthly  value  of  bills  and  accounts  receivable 
for  services  performed,  based  on  orders  received  at 
offices  maintained  by  the  corporation,  excluding 
bills  and  accounts  receivable  on  orders  filled  from  a 
stock  of  merchandise  or  other  property  maintained 

by  the  corporation None 

Average  monthly  value  of  all  real  property  wherever 

located    ( actual  value ) 40,000 

Average   monthly  value   of   all   its  tangible   personal 

property  wherever  located    (actual  value) 260,000 


Total    $480,000 

Average   total   actual   value   of    shares    of    stocks   of 

other  corporations  owned  by  this  corporation None 

ASSETS  SEGREGATED  TO  NEW  YORK  STATE  ONLY. 

(a)  Average  monthly  value  of  bills  and  accounts  receivable 

for  personal  property  manufactured  by  it  within 

this  state    None 

(b)  Average   monthly   value   of   bills    and    accounts   receiv- 

able for  personal  property  sold  by  it  from  mer- 
chandise owned  by  it  and  located  in  this  state  at 
the  time  of  acceptance  of  the  order,  but  not  manu- 
factured by  it  within  this  state $21,000 

(c)  Average  monthly  value  of  bills  and  accounts  receiv- 

able for  services  performed,  based  on  orders  re- 
ceived at  offices  maintained  by  the  corporation 
within  this  state,  excluding  bills  and  accounts  re- 
ceivable arising  from  sales  made  from  a  stock  of 
merchandise  or  other  property  at  a  place  of  busi- 
ness maintained  by  the  corporation  within  this 

state   None 

Average  monthly  value  of  its  real  property  within  this 

State  as  detailed  in  this  report  (actual  value) None 

Average  monthly  value  of  its  tangible  personal  prop- 
erty in  New  York  State  as  detailed  in  this  report 
( actual  value ) 75,000 


Total    $96,000 

Average  total  actual  value  of  shares  of  stocks  of  other 
corporations  owned  by  it  and  allocated  to  this 
State  by  rule  below None 


110  THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

If  this  company  paid  a  tax  based  on  its  net  income  only,  the 
computation  would  be  as  follows: 
96,000        45 

20,000  X X (4%?fc)  =  $180. 

480,000       1000 

which  is  less  than  one  mill  upon  each  dollar  of  the  apportionment 
of  the  face  value  of  its  issued  capital  stock,  apportioned  as  above 
stated,  as  will  be  seen  by  the  following  computation,  in  which  the 
apportionment  is  based  on  the  monthly  average  of  "real  and  tangible 
personal  property"  in  this  State  as  compared  with  the  total  "real 
and  tangible  personal  property"  as  shown  in  the  report. 

75,000 

1,000,000  X  .001  (one  mill)  -        -  =  $250. 

300,000 

Since  $250  is  greater  than  $180,  and  since  the  tax  can  be  no 
less  than  $250  under  the  rule  laid  down  in  the  statute  above  quoted, 
this  would  be  the  amount  payable  under  Article  9-a  as  amended. 

In  U.  8.  Glue  Co.  v.  Town  of  Oak  Creek,  decided  by  the  TL  S. 
Supreme  Court  June  3d,  1918,  and  affirming  161  Wisconsin  211, 
the  Supreme  Court  of  the  United  States  has  just  passed  upon  a 
method  of  apportionment  analogous  to  that  printed  in  the  fore- 
going pages.  While  the  direct  question  before  the  court  in  this 
case  was  the  right  to  tax  a  corporation  engaged  in  interstate  com- 
merce, under  a  general  Income  Tax  Law,  for  a  portion  of  its  busi- 
ness transacted  within  the  state,  the  method  of  apportionment 
under  the  Wisconsin  statute  was  before  the  court  and  we  may  con- 
clude that  it  came  within  its  approval  in  the  judgment  of  af- 
firmance. 

The  method  of  apportionment  as  set  forth  in  the  opinion  of  the 
court,  is  referred  to  as  follows : 

"In  order  to  determine  what  part  of  the  income  of  a  corporation 
engaged  in  business  within  and  without  the  State  (other  than  that 
derived  from  rentals,  stocks,  bonds,  securities,  etc.),  is  to  be  taxed 
as  derived  from  business  transacted  and  property  located  within  the 
State,  reference  is  had  to  a  formula  prescribed  by  another  statute 


REPORTS  OF  CORPORATIONS,  SEGREGATION  OF  ASSETS    111 

(see  1770b,  subs.  7,  par.  [e]  of  Wisconsin  Stats.)  for  apportioning 
the  capital  stock  of  foreign  corporations,  under  which  the  gross  busi- 
ness in  dollars  of  the  corporation  in  the  State,  added  to  the  value 
in  dollars  of  its  property  in  the  State,  is  made  the  numerator  of  a 
fraction  of  which  the  denominator  consists  of  total  gross  business 
in  dollars  of  the  corporation  both  within  and  without  the  State, 
added  to  the  value  in  dollars  of  its  property  within  and  without  the 
State.  The  resulting  fraction  is  taken  by  the  income  tax  law  as 
representing  the  proportion  of  the  income  which  is  deemed  to  be 
derived  from  business  transacted  and  property  located  within  the 
State.  This  formula  was  applied  in  apportioning  plaintiff's  net 
'business  income'  for  the  year  1911,  and  upon  the  portion  thus  at- 
tributed to  the  State,  plus  the  income  from  rentals,  stocks,  bonds, 
etc.,  the  tax  in  question  was  levied." 

General  instructions  for  making  reports. 

An  officer  having  knowledge  of  the  facts,  preferably  the  chief 
fiscal  officer  of  the  company,  may  make  a  report  tinder  Article 
9-a.  Section  213  requires  that  the  report  shall  be  verified  by  the 
President,  Vice- President,  Secretary  or  Treasurer;  it  is  not  neces- 
sary that  two  officers  verify  the  return;  verification  by  one  offi- 
cer is  sufficient. 

Receivers,  trustees  in  bankruptcy  and  assignees,  under  the  fed- 
eral income  tax  law  must  make  returns  and  pay  taxes  for  corpora- 
tions whose  property  they  are  operating,  and  it  would  seem  that 
they  should  also  make  a  report  under  Article  9-a  of  the  Tax  Law. 
That  there  is  some  warrant  for  such  action  in  connection  with  the 
State  Tax,  see  Central  Trust  Co.  v.  N.  Y.  C.  and  H.  R.  R.  Co., 
110  N.  Y.  250. 

Under  the  form  of  report  required  by  the  amendment  of  1918, 
the  amount  of  issued  capital  stock  is  called  for,  evidently,  for  the 
purpose  of  computing  the  minimum  tax  where  no  income  is  earned 
and  where  the  company  would  otherwise  not  be  taxable.  The  1919 
form  of  report  also  calls  for  the  amount  of  authorized  capital  stock 
as  an  administrative  regulation.  Issued  and  authorized  stock  had 
often  been  returned  indiscriminately. 

The  purpose  of  ascertaining  the  amount  of  indebtedness  as 
called  for  in  the  State  tax  form,  is  not  clear.  This  is  another 


THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

administrative  regulation.  This  information  is  required  by  the 
Connecticut  Law  taxing  miscellaneous  corporations  on  their  in- 
come. (Part  IV,  Chap.  292,  Public  Acts  of  1915  of  Connecticut, 
as  amended  by  Chap.  298,  Public  Acts  of  1917.)  It  is  also  re- 
quired by  the  Wisconsin  Income  Tax  Law.  (Chap.  650,  Laws  of 
1911,  as  amended.)  The  Connecticut  Law  accepts  the  income  re- 
turn made  to  the  United  States  Treasury  Department  as  a  basis 
of  taxation,  but  it  also  calls  for  facts  on  which  to  base  an  assess- 
ment on  substantially  similar  lines.  The  Wisconsin  Statute,  which 
is  a  general  Income  Tax  Law,  makes  its  own  assessment  on  inde- 
pendent lines,  irrespective  of  the  report  to  the  Treasury  Depart- 
ment. Since  the  amendment  of  1918,  the  New  York  Statute  per- 
mits the  corporation  to  return  its  own  income  if  it  contends  that 
the  amount  determined  by  the  United  States  Treasury  Depart- 
ment be  not  correct.  This  does  not  mean  that  the  net  income 
is  to  be  determined  de  novo,  but  that  there  may  be  a  re-computa- 
tion in  case  of  error. 

The  New  York  Law  makes  no  specific  requirements  for  any 
method  of  bookkeeping  for  ascertaining  the  net  income,  and  it  is 
to  be  assumed  that,  as  in  the  case  of  the  Wisconsin  Income  Tax 
Law  and  also  under  the  Federal  Statute,  any  method  of  book- 
keeping which  fairly  attains  the  result,  will  be  acceptable. 

Under  the  United  States  Treasury  decision,  Article  183,  Kegu- 
lation  33  of  January  5th,  1914,  it  is  held  that  "the  books  of  a 
corporation  are  assumed  to  reflect  the  facts  as  to  its  earnings,  in- 
come, etc.  Hence  they  will  be  taken  as  the  best  guide  in  deter- 
mining the  net  income  upon  which  the  tax  imposed  by  this  act 
is  calculated.  Except  as  the  same  may  be  modified  by  the  provi- 
sions of  the  law,  wherein  certain  deductions  are  limited,  the  net 
income  disclosed  by  the  books  and  verified  by  the  annual  balance 
sheet,  or  the  annual  report  to  stockholders,  should  be  the  same 
as  that  returned  for  taxation." 

The  nature  of  the  business  and  how  transacted,  should  be  stated 
with  some  particularity  in  the  report,  as  the  question  may  arise 
as  to  whether  the  company  may  segregate  its  assets  in  and  out  of 
the  State. 


REPORTS  OF  CORPORATIONS,  SEGREGATION  OP  ASSETS    113 

Under  item  13  of  the  report,  calling  for  the  locality  where  the 
company  maintains  a  store,  warehouse  or  factory  as  a  place  of  busi- 
ness, the  corporation  may  state  any  regular  office  or  permanent 
agency  established  by  it  outside  of  the  State. 

The  fact  that  a  corporation  did  no  business  or  received  no  in- 
come during  the  year  in  question,  does  not  relieve  it  from  mak- 
ing a  return.  Every  question  should  be  answered.  If  there  is  no 
amount  or  no  information  to  be  given  opposite  a  question,  the 
word  "none"  should  be  written  in. 

If  the  entire  business  of  a  corporation  is  not  transacted  within 
the  State,  to  entitle  it  to  an  apportionment  of  income,  and  a 
segregation  of  assets,  it  must  maintain  a  definitely  organized 
branch  establishment.  The  mere  sale  of  goods,  wares  and  mer- 
chandise without  the  State,  does  not  entitle  it  to  a  segregation 
of  assets  or  property  or  accounts  receivable  for  such  property  as  lo- 
cated outside  of  the  State. 

Determining  factors  are  whether  the  company  maintains  a  store, 
warehouse,  office,  factory  or  salesroom  in  another  State.  Has  it 
received  a  license  to  do  business  in  any  other  State?  Can  it  show 
possession  of  goods  subject  to  local  taxation  in  other  States,  or  any 
other  facts  tending  to  establish  a  permanent  business  without  the 
State? 

The  consent  by  a  corporation  to  a  tax  on  its  entire  income, 
should  only  be  executed  where  the  corporation's  entire  income 
is  due  to  property  located,  and  business  transacted,  within  the 
State.  Many  corporations  have  executed  this  consent  and  placed 
themselves  in  the  class  of  corporations  whose  entire  property  is 
located  within  the  State,  which  may  lead  to  unnecessary  explana- 
tion for  future  assessments. 

Corporations  transacting  business,  and  owning  tangible  prop- 
erty, within  and  without  the  State,  and  having  no  net  income, 
but  subject  to  a  minimum  tax  of  one  mill  (.001)  on  the  face  value 
of  their  issued  capital  stock,  should  not  execute  the  consent  but 
should  fill  out  the  statement  of  segregation  of  assets  in  order 
that  such  minimum  tax  may  be  determined  as  provided  in  para- 
graph 6,  Section  214.  Such  corporations  having  a  net  income  but 


114  THE   BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 

less  than  the  minimum  tax  of  one  mill  (.001)  on  the  face  value 
of  its  issued  capital  stock,  should  for  the  same  reason,  not  sign 
the  consent  but  fill  out  the  segregation  statement. 

How  to  ascertain  average  monthly  values. 

Under  the  State  Tax  Law,  as  it  existed  prior  to  1917,  the 
method  for  averaging  capital  employed  in  the  State,  was  to  take 
it  for  the  entire  period  under  consideration,  and  divide  it  by  the 
number  of  days  in  that  period.  People  ex  rel.  B.  R.  T.  Co.  v. 
Morgan,  57  App.  Div.  335,  affirmed  168  N.  Y.  672;  People  ex  rel 
Mutual  Trust  Co.  v.  Miller,  177  N.  Y.  51;  People  ex  rel.  Eees' 
Sons  v.  Miller,  90  App.  Div.  591;  People  ex  rel.  Colin  &  Co.  v. 
Miller,  94  App.  Div.  564.  This  rule  might  be  applied  to  each 
month,  and  the  aggregate  for  the  twelve  months  so  averaged  then 
divided  by  twelve. 

Under  the  United  States  Treasury  Department  regulations, 
invested  capital  for  a  taxable  year  (or  where  the  tax  is  computed 
upon  the  basis  of  a  period  less  than  a  year,  for  such  period)  is 
the  average  invested  capital  for  the  year  or  period  averaged  month- 
ly according  to  the  following  rules: 

(a)  Add  the  capital  for  each  of  the  several  months  during 
which  no  change  occurs,  and  the  average  capital   [ascertained  as 
provided  in  subdivision  (b)]   for  each  month  in  which  a  change 
occurs  and  divide  the  total  by  the  number  of  months  in  the  year 
or  period. 

(b)  To  ascertain  the  capital  for  any  month  in  which  a  change 
occurs  multiply  the  capital  as  of  the  first  day  of  the  month  by 
the  number  of  days  it  remains  constant  and  the  capital  after  each 
change  by  the  number  of  days  (including  the  day  on  which  the 
change  occurs)  during  which  it  remains  constant,  add  the  products, 
and  divide  the  sum  by  the  number  of  days  in  the  month. 

Under  the  heading  "Segregation  of  Assets,"  item  "(a)  aver- 
age monthly  value  of  bills  and  accounts  receivable  for  personal 
property  manufactured  by  it,"  may  include  accounts  for  personal 
property  manufactured  by  a  corporation  and  then  shipped  to  a 
branch  outside  of  the  State,  sold  and  delivered  from  this  branch 


REPORTS  OF  CORPORATIONS,  SEGREGATION  OF  ASSETS    115 

to  customers  outside  of  the  State.  See  U.  S.  Glue  Co.  v.  Town  of 
Oak  Creek,  161  Wise.  211.  In  such  case,  the  corporation  may 
be  taxable  in  two  jurisdictions. 

Under  the  item  "(b)  personal  property  sold  by  the  corporation 
from  merchandise  owned  by  it  at  the  time  of  the  acceptance  of 
order,  but  not  manufactured  by  it/'  viz.,  goods  which  were  made 
up  for  it  after  it  accepted  the  order,  a  corporation  may  have  on 
its  books  accounts  for  goods  sold  which  were  not  in  existence  at 
the  time  of  the  acceptance  of  the  order,  and  hence  could  not  rea- 
sonably go  under  (b),  but  might  be  fairly  expected  to  go  under 
"(c)  services  performed  based  on  orders  received  at  offices  main- 
tained by  the  corporation,  excluding  bills  and  accounts  receivable 
on  orders  filled  from  a  stock  of  merchandise  or  other  property 
maintained  by  the  corporation."  Item  (c)  would  include  the 
value  of  services  rendered  by  a  so-called  personal-service  corpora- 
tion under  the  1919  amendment,  viz.,  accounts  receivable  by  an  ad- 
vertising corporation,  engineering  company,  trucking  company,  etc. 

Item  (c)  might  also  include  accounts  for  services  performed  in 
the  State,  by  a  company  maintaining  a  factory  or  warehouse  out- 
side of  the  State;  for  instance,  a  corporation  engaged  in  the  auto- 
mobile business,  having  a  factory  outside  of  the  State,  might  have 
a  repair  shop  or  service  station  within  the  State,  where  services 
are  rendered  and  work  is  done.  In  connection  with  such  services, 
supplies  and  parts  might  also  be  sold.  These  last  should  be  sepa- 
rated from  the  services  rendered. 

The  item  of  average  monthly  value  of  all  real  property  includes 
the  actual  value.  In  New  York  State,  the  Tax  Law  provides 
(Section  6),  that  all  real  estate  shall  be  assessed  at  the  "full 
value"  thereof,  and  there  is  a  legal  presumption  that  assessors, 
being  public  officers,  do  their  duty.  People  ex  rel.  Manhattan  R. 
R.  Co.  v.  Commissioners,  146  N.  Y.  304,  165  N.  Y.  305.  There 
is  no  presumption  in  relation  to  the  assessments  in  other  States, 
and  consequently  the  assessed  value  of  real  estate  outside  of  the 
State  of  New  York,  may  or  may  not  be  at  actual  value. 

The  provision  in  the  form  as  to  the  item  of  the  average  monthly 


THE  BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 

value  of  its  tangible  personal  property,  is  that  it  shall  be  made  at 
"its  actual  value  where  located/'  which  may  be  construed  as  its 
ordinary  market  value.  This  may  be  accepted  even  though  smaller 
than  the  book  value  where  nothing  else  appears  to  cast  a  doubt  on 
the  corporation's  figures.  People  ex  rel.  A.  G.  Hyde  &  Sons  v. 
O'Donnel,  116  App.  Div.  161;  affd  188  N.  Y.  551. 

The  cost  may  be  taken  as  the  basis  in  the  absence  of  satisfactory 
proof  as  to  the  market  or  actual  value.  People  ex  rel.  John  Turl's 
Sons  v.  O'Donnell,  N.  Y.  Law  Journal,  June  27th,  1905.  See 
also  People  ex  rel.  Journeay  &  Burnham  Co.  v.  Roberts,  37  App. 
Div.  1. 

The  last  item  in  the  segregation  of  assets  is  the  "average  total 
actual  value  of  shares  of  stocks  of  other  corporations  owned  by 
this  corporation." 

In  connection  with  this  item  and  the  apportionment  of  prop- 
erty called  for  by  it,  it  should  be  remembered  that  only  the  shares 
of  stock  should  be  segregated  to  this  State  if  the  physical  property 
represented  by  it,  is  within  the  State,  or  vice  versa. 

Under  the  amended  law,  while  the  segregation  of  this  item 
shall  be  given  in  full,  in  its  computation  for  the  purpose  of  ar- 
riving at  the  tax  due  in  each  case,  this  item  shall  not  exceed  10 
per  cent,  of  the  real  and  tangible  personal  property  segregated 
to  this  State,  or  in  case  of  the  segregation  of  shares  of  stock  out- 
side of  New  York  State,  it  shall  not  exceed  10  per  cent,  of  the 
aggregate  real  and  tangible  personal  property  set  up  in  this  re- 
port. 

Computation  of  tax. 

I.  If  the  entire  business  of  the  corporation  be  transacted  within 
the  State,  the  tax  will  be  4%  per  cent,  of  the  entire  net  income. 
The  tax  will  not  be  less  than  $10  or  less  than  one  mill  on  the 
dollar  (1/10%)  on  the  face  value  of  the  issued  capital  stock,  viz., 
if  the  income  is  $200  and  the  face  value  of  the  issued  capital  stock 
is  $1,000,  the  tax  will  be  $10.     If  the  income  is  $200  and  the 
face  value  of  the  issued  capital  stock  is  $20,000,  the  tax  will 
.be  $20. 

II.  If  the  corporation  has  no  income  for  the  fiscal  or  calendar 


REPORTS  OF  CORPORATIONS,  SEGREGATION  OF  ASSETS    117 

year  under  consideration,  and  if  its  entire  property  is  appor- 
tioned within  the  State  as  determined  by  the  rules  laid  down  in 
the  statute  and  heretofore  explained,  the  tax  will  be  one  mill 
upon  each  dollar  of  the  face  value  of  its  issued  capital  stock,  but 
not  less  than  $10,  viz.,  if  the  face  value  of  the  issued  capital  stock 
is  $1,000  the  tax  will  not  be  less  than  $10,  which  in  this  case, 
coincides  with  one  mill  on  the  face  value  of  $1,000,  the  issued 
capital  stock.  But  if  one  mill  on  the  face  value  of  the  issued 
capital  stock  is  more  than  $10,  viz.,  if  the  face  value  of  the  issued 
capital  stock  is  $20,000,  the  tax  will  be  $20  in  the  case  mentioned ; 
and  if  the  face  value  of  the  issued  capital  stock  is  $100,000  the 
tax  will  be  $100. 

The  expression  in  the  statute,  that  the  tax  shall  be  "not  less 
than  $10  and  not  less  than  one  mill  upon  the  apportionment  of 
the  face  value  of  its  issued  capital  stock  apportioned  to  this  State" 
means  that  the  tax  shall  not  be  less  than  $10  and  also  that  the  tax 
shall  not  be  less  than  the  sum  arrived  at  by  the  apportionment 
pointed  out  in  the  provisions  in  the  amended  statute  of  1918. 

The  method  of  apportionment  in  determining  the  minimum  tax 
of  one  mill  on  the  face  value  of  the  issued  capital  stock  under  the 
last  or  proviso  clause  in  Section  214,  is  not  identical  with  the 
method  of  apportionment  used  in  the  body  of  Section  214  in  de- 
termining the  amount  of  tax  based  on  net  income.  In  the  former 
case,  the  bills  receivable  and  stock  in  other  corporations  are  not 
to  be  considered  at  all  in  making  the  apportionment,  but  only  the 
real  and  tangible  personal  property. 

Phrases  similar  to  that  used  in  Section  214  of  the  amended  law, 
that  the  tax  shall  be  "not  less  than  $10  and  not  less  than  one  mill 
upon  each  dollar  of  the  apportionment,"  etc.,  have  been  passed 
upon  by  the  courts  as  meaning  that  it  shall  not  be  less  than  the 
greater  sum. 

In  Commonwealth  v.  P.  R.  E.  Co.,  94  Pa.  474,  the  court  said  in 
this  connection: 

"The  Act  of  Assembly  does  not  say  so.  It  requires  an  appraise- 
ment to  be  made  between  the  1st  and  15th  days  of  November,  of  the 
st6ck  of  non-dividend  paying  corporations,  or  those  paying  less  than 


118  THE  BUSINESS   CORPORATIONS  TAX    (ART.    9-A) 

six  per  cent.,  said  stock  is  to  be  appraised  at  its  cash  value,  'not 
less,  however,  than  the  average  price  which  said  stock  sold  for  dur- 
ing said  year.'  If  the  Legislature  intended  to  have  the  stock  appraised 
at  its  average  price  during  the  year,  it  was  very  easy  to  have  said 
so.  We  find  nothing  in  the  act  from  which  such  intent  can  be  gath- 
ered with  any  reasonable  certainty.  On  the  contrary,  the  use  of 
the  words  'not  less,  however,  than  average  price  which  said  stock 
sold  for  during  said  year,'  necessarily  implies  the  power  to  appraise 
the  stock  at  more  than  its  average  price  during  the  year.  The  con- 
struction of  the  Act  contended  for  by  the  company  would  expunge 
the  words  above  quoted,  or  render  them  nugatory.  It  is  our  duty 
to  give  them  effect  if  consistent  with  other  portions  of  the  statute. 
They  mean  just  this:  That  if  the  stock  of  the  company  is  lower 
when  the  appraisement  is  made  in  November  than  it  was  during 
the  previous  year,  it  shall  be  appraised  at  not  less  than  the  average 
selling  price  for  the  year.  On  the  other  hand,  if  it  is  higher  in  No- 
vember, it  may  be  appraised  at  its  increased  value.  If  it  be  objected 
to  this  view  that  the  advantage  is  all  on  the  side  of  the  State,  we 
may  safely  concede  it  to  be  so.  The  object  of  the  Act  was  to  raise 
revenue,  and  ft  appears  to  have  been  drawn  with  care,  and  in  the 
interests  of  the  State. 

"We  are  of  opinion  that  the  learned  judge  of  the  court  below  ruled 
the  law  correctly,  and  his  judgment  is  accordingly  affirmed." 

III.  If  the  entire  business  be  not  transacted  within  the  State, 
the  tax  shall  be  based  on  such  proportion  of  the  entire  net  income 
at  4%  per  cent.,  as  the  aggregate  of  items  mentioned  in  subdivi- 
sions 1,  2  and  3  of  Section  214  of  the  Tax  Law,  bears  to  the 
aggregate  of  items  mentioned  in  subdivisions  4,  5  and  6  of  Sec- 
tion 214,  with  this  proviso :   That,  in  the  case  of  the  ownership  of 
stocks  in  other  corporations,  owned  by  the  corporation,  referred 
to  in  subdivisions  3  and  6  in  said  section,  such  stocks  shall  in 
neither  case  exceed  10  per  cent,  of  the  real  and  tangible  personal 
property  segregated  to  this  State  under  3,  or  of  the  aggregate 
real  and  tangible  personal  property  set  up  under  6. 

IV.  Under  this  state  of  facts,  in  the  case  of  a  corporation 
whose  net  income  for  the  fiscal  or  calendar  year  was  $100,000  on 
the  basis  of  $200,000  of  assets  segregated  in  New  York  State,  as 
shown  in  the  form  of  report,  and  $800,000  of  total  segregated 
assets  wherever  located,  the  tax  apportioned  to  this  State  would  be 


REPORTS   OF   CORPORATIONS,   SEGREGATION   OF   ASSETS         119 
200,000 


-  X  $100,000  X  4%9&  =  $1125. 
800,000 

V.  If   the   same   corporation   has   an   issued   capital   stock   of 
$5,000,000,   the  tax  would   be   $1,250   instead   of   $1,125,    since 
in  no  case  can  it  be  less  than  .001  of  the  issued  capital  stock.    The 
same  tax  would  be  due,  if  the  corporation  had  no  income. 

200,000      5,000,000 

-  .  x  -  X  .001  =  $1250. 
800,000  1 

VI.  If  such  a  corporation  has  stock  without  par  value,  then  it 
may  take  the  paid  in  capital  as  the  base,  which,  let  us  assume  is 
$6,000,000  and  the  computation  would  appear  as  follows  : 

200,000      6,000,000 

—  X  -  -  X  .001  =  $1500. 

800,000  1 

It  will  thus  be  seen  that  the  same  corporation  may  pay  a  tax  of 
either  $1,200  or  $1,500,  dependent  upon  whether  it  has  a  stock  issue 
to  the  extent  of  the  face  value  of  $5,000,000,  or  whether  it  has 
stock  without  par  value,  which  had  a  paid  in  capital  or  actual  value 
of  $6,000,000  at  the  time  of  its  issuance. 

Consolidated  or  merged  corporations.  —  Under  an  amendment 
in  1918  to  Article  9-a,  which  added  a  new  section  known  as  214-a 
to  the  law  taxing  manufacturing  and  mercantile  corporations,  pro- 
vision was  made  for  the  taxation  of  a  corporation  taking  over  by 
merger  or  consolidation  the  assets  or  franchise  of  another  cor- 
poration. This  section  was  again  amended  in  1919  so  that  it 
would  apply  to  a  corporation  that  took  over  not  only  by  merger  or 
consolidation,  but  by  acquisition  or  transfer,  directly  or  indirectly, 
the  whole  or  major  part  of  the  assets  of  another  company.  In 
such  case,  the  corporation  receiving  the  benefit  of  the  additional 
assets  or  franchises  must  return  in  addition  to  its  own  income,  so 
much  of  the  income  of  the  corporation  whose  assets  or  franchises 
it  acquired,  as  had  not  been  used  in  measuring  a  franchise  tax  to 


120  THE   BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 

the  State  in  the  past.  It  had  been  found  that  many  corporations 
without  merger  or  consolidation,  but  by  trades  and  transfers, 
took  over  the  whole  or  part  of  the  assets  of  another  corporation, 
and  by  blending  or  changing  the  names  of  the  companies  involved, 
escaped  taxation. 


CHAPTER  XVI. 

EXEMPTION  FROM  PERSONAL  PROPERTY  TAX  AND  FROM  SECTION 
182. — FIXTURES. 

Section  219-j  of  the  Act  as  amended  in  1918,  provided  that 
"after  this  article  takes  effect,  corporations  taxable  thereunder 
shall  not  be  assessed  on  any  personal  property  or  capital  stock,  as 
provided  for  in  Section  12  of  this  Chapter."  The  words  "cor- 
porations taxable  thereunder/'  refer  to  corporations  taxable  under 
Section  209  of  Article  9-a,  viz.,  foreign  and  domestic  business  cor- 
porations except  those  exempted  under  Section  210.  Foreign  cor- 
porations doing  business  in  the  State  are  taxed  under  Section  7 
of  the  Tax  Law,  paragraph  I,  "on  the  capital  invested  in  such 
business  as  personal  property."  Domestic  corporations  are  taxable 
"upon  their  capital  stock"  under  Section  12  of  the  Tax  Law.  The 
words  "capital  stock"  in  Section  12  of  the  Tax  Law  have  been 
denned"  as  referring  to  the  capital  of  the  company  and  not  the 
fchares  of  the  stockholders.  People  ex  rel.  Union  Trust  Co.  v. 
Coleman,  126  N.  Y.  433.  It  denotes  the  property  owned  by  the 
corporation  and  not  the  par  or  actual  value  of  the  shares  of  the 
stockholders.  People  ex  rel.  Second  Avenue  Railroad  Co.  v.  Bar- 
ker, 72  Hun,  126.  While  no  reference  is  made  in  the  statute  to 
foreign  corporations  assessed  under  Section  7,  being  exempt  from 
local  taxation,  the  intendment  is  clear. 

It  is  also  provided  in  Section  219-j  that  "after  this  article  takes 
effect,  corporations  taxable  thereunder  shall  not  be  required  to  pay 
the  Franchise  Tax  imposed  under  Section  182  of  this  Chapter,  or 
to  make  the  reports  called  for  under  Sections  27  and  192  of  this 
Chapter." 

Section  27  provides  for  the  report  to  be  made  by  a  domestic  cor- 
poration to  local  assessors  as  to  its  capital  stock,  real  estate,  etc., 

121 


122  THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

and  Section  192  provides  for  the  report  by  a  domestic  or  foreign 
corporation  to  the  State  Tax  Commission  as  to  the  rate  and  date 
of  dividends,  etc.,  for  the  purposes  of  Section  182. 

Only  corporations  taxable  under  g-a  exempt. — Chap.  271  of 
the  Laws  of  1918,  changed  the  language  of  the  1917  law  by  strik- 
ing out  the  words  "manufacturing  and  mercantile"  and  substitut- 
ing for  that  phrase,  the  expression  "corporations  taxable  there- 
under," and  chapter  628  of  the  Laws  of  1919  made  the  act  apply 
to  all  business  corporations. 

The  amendments  of  1919  therefore  make  the  exemption  from 
local  personal  property  taxation  and  from  taxation  under  Section 
182  of  the  Tax  Law  apply  to  all  business  corporations  taxable 
under  Article  9-a.  Those  corporations  that  are  exempt  from  tax- 
ation under  Article  9-a,  such  as  realty  corporations,  holding  com- 
panies, public  service  and  public  utility  corporations  and  all  of 
the  corporations  taxable  under  Sections  184  to  189  of  the  Tax 
Law,  are  still  liable  to  the  personal  property  tax  under  Section  12. 

A  curious  feature  in  connection  with  the  exemption  of  business 
corporations  from  the  personal  property  tax,  is  that  it  has  ap- 
parently revived  the  liability  to  assessment  of  the  owner  or  holder 
of  stock  in  an  incorporated  company.  Heretofore,  subdivision  16, 
Section  4  of  the  Tax  Law  provided,  under  the  heading  of  "Exemp- 
tion from  Taxation,"  that  the  "owner  or  holder  of  stock  of  an 
incorporated  company  liable  to  taxation  on  its  capital,  shall  not  be 
taxed  as  an  individual  for  such  stock."  Since  business  corpora- 
tions are  no  longer  liable  to  taxation  on  their  capital,  the  exemp- 
tion appears  to  fall. 

Fixtures,  when  exempted  from  taxation. 

The  Income  Tax  Law  passed  in  1917,  provided  that  personal 
property  should,  for  the  purpose  of  the  exemption  under  Section 
219-j,  include  machinery  and  equipment  affixed  to  the  building 
which  would  not  pass  as  part  of  the  premises  as  between  grantor 
and  grantee  unless  specifically  mentioned  in  the  deed,  and  such 
as  would  be  moved,  if  the  building  were  vacated  or  sold,  or  the 
nature  of  the  work  changed,  carried  on  therein.  This  did  not 


EXEMPTION   FROM   PERSONAL   TAX;   FIXTURES  123 

extend  to  boilers,  ventilating  apparatus,  elevators,  shafting  and 
apparatus  for  generating  power  by  gas,  electricity  and  water. 
Chapter  417  of  the  Laws  of  1918,  struck  this  provision  from  Sec- 
tion 219-j  of  the  law,  where  it  stood  in  the  act  as  passed  in  1917, 
and  segregated  it  in  a  new  section  called  Section  219-1.  The  pro- 
vision of  the  former  law  was  repeated  with  the  addition  "that  the 
owner  of  the  building  is  entitled  to  the  same  exemption  under  this 
section,  as  a  lessee/'  The  amendment  of  1918  also  provided  that 
every  assessment  of  real  property  made  after  June  4,  1917,  should 
be  subject  to  the  provisions  of  this  section. 

Under  a  recent  decision,  it  has  been  held  that  this  section  modi- 
fies the  law  embodied  in  Section  2,  subdivision  6,  of  the  Tax  Law, 
under  which  the  term  "real  property"  includes  in  addition  to  the 
land  itself,  all  articles  and  structures,  substructures  and  super- 
structures  erected  upon,  under  or  above,  or  affixed  to  the  same. 

The  question  of  the  taxation  of  machinery  and  fixtures  as  real 
estate  when  attached  to  a  building  had  up  to  this  time  depended 
not  on  whether  machinery  and  fixtures  could  be  removed  from  the 
building  without  material  injury  thereto,  but  on  whether  they  were 
annexed  and  essentially  necessary  to  the  character  of  the  business 
for  which  the  building  was  used.  This  principle  was  laid  down  in 
People  ex  rel.  National  Starch  Co.  v.  Waldron,  26  App.  Div.  527, 
and  reaffirmed  in  a  number  of  later  cases,  among  them  Herkimer 
County  Light  &  Power  Co.  v.  Johnson,  37  App.  Div.  257;  People, 
ex  rel.  Federal  Telephone  &  Telegraph  Co.  v.  Longwell,  131  N".  Y. 
Supp.  361;  People  ex  rel.  N.  Y.  Edison  Co.  v.  Feitner,  99  App. 
Div.  274;  aff'd  without  opinion,  181  N.  Y.  549. 

In  a  recent  case  before  Judge  Delehanty  in  the  Supreme  Court, 
New  York  County,  he  expressed  the  opinion  that  the  effect  of  the 
amendment  to  Chapter  726  of  the  Laws  of  1917  was  to  remove 
all  removable  machinery  from  taxation  either  as  real  estate  or  as 
personal  property.  He  said  in  this  connection,  "Prior  to  the 
passage  of  the  Emerson  Act,  'real  estate'  for  the  purpose  of  taxa- 
tion was  defined  by  subdivision  6,  Section  2,  of  the  Tax  Law,  as 
'the  land  itself  above  and  under  water,  all  buildings  and  other 
articles  and  structures,  substructures  and  superstructures,  erected 


124  THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

upon,  under  or  above,  or  affixed  to  the  same/  etc.,  and  under  the 
decisions  of  this  State  it  has  been  held  that  pursuant  to  said  sec- 
tion quoted  machinery  installed  in  a  building  and  affixed  to  the 
realty  is  taxable  as  real  estate  (N.  Y.  Edison  Co.  v.  Wells,  135  App. 
Div.  644,  and  cases  there  cited) .  But  the  situation  in  this  respect 
is  now  changed.  The  Legislature  by  the  Emerson  Act  has  de- 
fined what  shall  constitute  'personal  property'  for  the  purpose  of 
taxation  of  mercantile  and  manufacturing  corporations  and  has 
made  such  exempt  from  local  taxation.  The  language  used  in 
the  statute  is  in  nowise  uncertain  or  doubtful  of  meaning,  and  in 
my  opinion  the  plain  intent  thereof  was  to  exempt  from  personal 
property  tax  such  machinery  and  equipment  affixed  to  the  build- 
ing as  could  be  removed  therefrom  without  material  injury  there- 
to, except,  of  course,  boilers,  etc.,  expressly  precluded.  This  is 
obvious  from  the  context  of  the  statute  quoted;  otherwise  why  an 
enumeration  of  machinery  and  equipment  not  exempt  from  taxa- 
tion?" People  ex  rel.  Gen.  Chemical  Co.  v.  Cantor,  105  Misc.  62. 
This  case  is  now  being  appealed  to  the  Appellate  Division,  Su- 
preme Court,  but  since  the  trial  of  the  case,  the  Legislature  has 
amended  the  section  in  dispute  and  removed  the  element  of  doubt 
as  to  the  character  of  machinery  subject  to  real  estate  taxation, 
by  making  removable  machinery  used  for  trade  or  manufacture, 
exempt  from  personal  property  assessment  and  by  striking  out  the 
paragraph  as  to  real  estate  assessments  made  subsequent  to  June, 
1917.  The  amendment  also  provides  that  the  act  shall  not  af- 
fect pending  litigation. 


CHAPTER  XVII. 

TEMPORARY    PROVISIONS    FOR    CREDITING    CORPORATIONS    WITH 
PERSONAL  TAXES  PAID  IN  1917  AND  1918.— SCHOOL  TAXES. 

Temporary  provisions. — The  intent  to  relieve  corporations  pay- 
ing the  income  tax  from  assessment  of  personal  property  and  on 
their  capital  stock  as  it  was  expressed  in  the  Act  of  1917,  pre- 
sented obscurity  in  its  application  because  of  difference  between 
the  various  taxing  districts  as  to  the  beginning  and  the  end  of 
the  fiscal  year.  The  income  tax  is  payable  in  advance  each  year 
on  a  report  made  as  of  November  1,  as  to  the  income  of  the  pre- 
vious year.  Under  the  General  Tax  Law,  assessment  rolls  out- 
side of  New  York  City  are  made  up  before  August,  closed  in 
September,  then  equalized  by  the  County  Board  of  Supervisors,  and 
the  collector's  warrant  is  by  Section  59,  to  be  attached  on  or  be- 
fore December  15th,  or  some  other  date  not  later  than  April  15th, 
if  the  latter  date  be  adopted  by  a  special  resolution  of  the  Board 
of  Supervisors.  Speaking  generally,  there  are  tax  districts  in 
which  the  tax  year  runs  not  only  from  July  to  July,  but  from 
every  month  between  January  and  December.  By  Section  27, 
corporations  must  report  as  to  their  capital  stock  paid  in  on  June 
1st,  or  within  30  days  afterward.  The  new  law  took  effect  at  once 
on  its  approval  by  the  Governor  on  June  4th,  1917,  and  in  making 
up  assessment  rolls  between  then  and  August  1st,  1917,  assessors 
outside  of  New  York  City  had  before  them  corporation  reports 
which  prematurely  claimed  immunity  from  personal  payment  to  be 
made  January  1st,  1918,  in  advance  for  the  year  beginning  Novem- 
ber 1st,  1917.  The  claim  was  of  immunity  from  a  personal  prop- 
erty tax  for  1917  not  then  completely  assessed  or  due  and  was 
based  on  an  income  tax  for  the  year  beginning  November  1st, 
1917,  not  payable  until  January  1st,  1918.  Amendatory  legisla- 

125 


126  THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

tion  added  to  Section  219-j  of  the  law  by  Chapter  271  of  the  Laws 
of  1918,  sought  to  cure  the  confusion  so  created.  There  was  a 
serious  question  as  to  the  constitutionality  of  the  1917  Act  in 
denying  to  corporations  taxed  for  the  same  year  the  equal  protec- 
tion of  the  law. 

The  amendment  excepted  from  the  immunity  from  the  personal 
tax,  levies  for  the  fiscal  year  ending  December  31st,  1917,  in  taxing 
districts  in  which  the  calendar  year  and  the  tax  year  are  the 
same,  i.  e.,  "coterminous."  In  districts  in  which  local  taxes  are 
levied  for  a  twelve-month  beginning  in  1917  and  ending  in  1918, 
corporations  taxable  under  Article  9-a  are  not  to  be  assessed  on 
any  personal  property  or  capital  stock  except  the  levy  for  the  year 
1917-1918.  It  was  also  provided  by  the  amendment  that  cor- 
porations omitted  from  the  assessment  rolls  in  1917,  through  pre- 
maturely crediting  them  with  an  income  tax  which  they  expected 
to  pay  for  the  year  1918,  should  be  restored  to  the  rolls  and  be 
taxed  on  the  valuation  of  their  omitted  property  at  the  rate  per 
cent.,  levied  on  property  generally  listed  on  the  roll. 

Provision  is  made  for  five  days'  notice  as  to  valuation  of 
omitted  property,  and  for  an  opportunity  to  be  heard.  The  taxes 
thus  put  back  on  property  omitted  prematurely  from  the  assess- 
ment, rolls  made  up  in  the  summer  of  1917,  "shall  be  deducted  from 
the  aggregate  of  taxation,  otherwise  to  be  levied  on  such  taxing,  for 
the  current  year,  before  such  tax  is  levied."  In  other  word- 
town,  village  and  city  authorities  are  to  deduct  from  the  1918  levy 
the  amount  of  taxes  corporations  would  have  been  assessed  if  they 
hacl  not  been  omitted  prematurely  from  the  rolls. 

The  amending  act  not  only  confers  authority  on  the  as- 
place  on  the  assessment  rolls  personal  property  of  corporations 
omitted,  but  specific  authority  to  make  a  retroactive  tax  levy  on 
the  omitted  property  is  given  and  to  make  assurance  thoroughly 
certain  it  is  declared  that  the  amended  law  shall  be  read  and 
interpreted  as  though  the  amendment  were  in  the  act  when  it 
was  passed  in  1917.  There  is  thus  a  difference  from  the  general 
authority  given  assessors  to  place  omitted  property  on  the  assess- 
ment roll  in  the  following  year  at  the  valuation  made  or  to  be 


TEMPORABY   PROVISIONS;    SCHOOL  TAXES  127 

made  for  the  preceding  year  under  Tax  Law  Section  34.  That 
section  applied  to  corporations  (People  ex  rel.  Brooklyn  City  Rail- 
road v.  Assessors  of  Brooklyn,  92  N.  Y.  430) ;  but  it  did  not  au- 
thorize assessment  of  omitted  property  without  notice  or  after  com- 
pletion of  the  roll  of  the  current  year.  Overing  v.  Foote,  65  N.  Y. 
263. 

The  case  where  corporations  begin  paying  income  taxes  on 
January  1st,  1918,  but  are  still  assessed  on  personal  property  and 
capital  for  a  tax  covering  some  portion  of  the  year  1918,  is  pro- 
vided for  by  the  amending  legislation  of  1918. 

The  Act  of  1917  provided  that  the  obligation  to  pay  taxes  on 
personal  property  or  capital  stock  assessed  in  1916,  and  in  1917, 
before  the  act  took  effect,  whether  payable  in  that  year  or  not, 
should  not  be  impaired,  and  the  omission  to  mention  specifically 
assessments  after  June  4th,  1917,  no  doubt  led  to  omission  from 
the  assessment  rolls. 

The  amended  act  drops  the  phrases  "after  this  act  takes  effect, 
manufacturing  and  mercantile  corporations  shall  not  be  assessed 
on  any  personal  property,"  etc.,  and  "after  this  act  takes  effect 
manufacturing  and  mercantile  corporations  shall  not  be  assessed  or 
taxed  on  their  capital  stock  as  provided  for  in  Section  12  of  this 
chapter." 

In  their  place,  is  substituted  a  clearer  expression  of  intent. 
The  phrasing  is  now:  "After  this  article  takes  effect,  corporations 
taxable  thereunder  shall  not  be  assessed  on  any  personal  property 
or  capital  stock,  except  for  taxes  levied  for  the  fiscal  year  ending 
December  thirty-first,  nineteen  hundred  and  seventeen,  in  taxing 
districts  in  which  the  fiscal  year  is  coterminous  with  the  calendar 
year,  and  where  taxes  are  required  by  law  to  be  levied  for  local 
purposes  for  a  fiscal  year  beginning  in  nineteen  hundred  and 
seventeen  and  ending  in  nineteen  hundred  and  eighteen." 

The  amending  act  substitutes  the  phrase  "as  specifically  provided 
for  in  this  section  whether  such  taxes  have  been  or  may  hereafter 
be  assessed"  for  the  confusing  expression  of  the  act  as  passed  in 
1917.  The  only  personal  tax  assessment  now  specifically  pro- 
vided for  in  Section  219-j  refers  to  those  made  for  a  year  ending 


128  THE   BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 

with  1917  or  made  in  1917,  and  covering  a  period  lapping  over 
into  1918. 

As  the  law  now  stands,  a  corporation  which  shall  submit  to  the 
Tax  Commission,  proof  that  it  has  paid  a  tax  on  its  personal 
property  to  local  assessors  for  a  tax  period  covering  any  part  of 
the  year  ending  December  31st,  1918,  will  be  entitled  to  credit 
to  that  extent  on  account  of  its  income  tax  payment.  The  credit 
can  be  assigned  to  another  corporation.  Such  credits  are  to  be 
deducted  from  the  apportionment  made  to  the  same  locality  for 
local  purposes  from  the  revenue  derived  from  the  income  tax. 

Comptroller  may  refund  under  1919  law. — Chapter  138  of 
the  Laws  of  1919  omitted  the  last  paragraph  of  Section  219-j. 
This  paragraph  had  reference  to  the  administrative  features  for 
charging  or  crediting  taxes  against  the  various  taxing  districts 
of  the  State.  There  was  added  to  this  section  in  lieu  of  the 
omitted  paragraph,  the  following: 

Upon  receipt  of  notice  from  the  tax  commission  of  any  credit  under 
this  article  the  comptroller  may  refund  to  the  corporation,  out  of  the 
current  revenues  in  his  hands  received  under  this  article,  the  amount 
of  such  excess  paid  by  the  corporation,  without  interest,  and  shall 
charge  the  amount  or  amounts  of  such  excess  against  the  state  treas- 
ury and  the  taxing  district  or  districts  in  the  proportions  that  such 
excess  was  originally  credited  or  paid.  In  case  the  amount  of  current 
revenues  credited  to  any  taxing  district  under  this  article  is  not  equal 
to  the  charge  against  any  such  taxing  district  on  account  of  such 
refund,  further  revenues  credited  to  such  taxing  district  shall  first  be 
applied  by  the  comptroller  to  the  liquidation  of  such  charge. 

Payment  of  personal  taxes  for  the  year  1917-18  is  not  a 
contract  with  the  State. — In  the  City  of  Buffalo,  personal  tax 
assessments  were  made  for  the  fiscal  year  beginning  July,  1917, 
and  ending  July,  1918.  Under  the  reading  of  Section  219-j,  as  it 
existed  in  1917,  corporations  thus  assessed  were  entitled  to  a  credit 
on  their  franchise  tax  payments  by  virtue  of  Section  219-j  of 
Chapter  726  of  the  Act  of  1917,  in  the  full  amount  of  the  per- 
sonal property  tax  paid. 

After  the  amendment  to  Section  219-j  in  1918,  by  which  cor- 
porations were  only  entitled  to  a  credit  "for  the  amount  of  such 


TEMPORAHY   PROVISIONS;   SCHOOL  TAXES  129 

part  of  the  taxes  so  paid  locally  as  the  portion  of  the  year  nine- 
teen hundred  and  eighteen  for  which  such  taxes  shall  have  been 
paid  bears  to  the  entire  calendar  year,"  a  Buffalo  corporation 
claimed  that  its  payment  of  taxes  in  1917  for  1918  was  in  the 
nature  of  a  contract  with  the  State  of  New  York,  and  that  the 
amendment  of  1918  was  invalid  insofar  as  it  attempted  to  in- 
terfere with  or  impair  the  obligation  of  this  contract.  Upon  ap- 
plication by  the  Iroquois  Door  Company  of  Buffalo,  for  a  credit 
for  the  franchise  tax  assessed  and  determined  against  it  by  the 
State  Tax  Commission  under  the  provisions  of  Section  219-j,  Arti- 
cle 9-a  of  the  Tax  Law,  for  the  year  beginning  November  1st,  1917, 
on  account  of  taxes  paid  locally  on  personal  property,  the  Tax 
Commission  having  considered  the  facts  on  the  application,  deter- 
mined that  this  corporation  was  entitled  to  a  credit  of  only  one- 
half  of  the  taxes  paid  by  it  for  city  purposes  for  the  fiscal  year 
of  the  City  of  Buffalo  ending  June  30th,  1918.  Thereafter,  the 
Iroquois  Company  appealed  to  the  Appellate  Division  of  the  Su- 
preme Court  and  by  unanimous  decision,  the  court  sustained  the 
Tax  Commission.  Judge  Cochran,  in  writing  the  opinion  in  People 
ex  rel.  Iroquois  Door  Co.  v.  Knapp,  173  New  York  Supplement, 
641,  said : 

"I  can  discover  no  element  of  a  contract  in  the  Act  of  1917.  Such 
legislation  was  not  personal  to  the  relator.  It  was  part  of  the  Gen- 
eral Tax  Law  of  the  state.  Its  provisions  were  applicable  to  all  cor- 
porations falling  within  its  purview.  The  state,  by  that  legislation 
was  not  entering  into  a  contract  with  the  relator  or  any  other  cor- 
poration. It  was  merely  exercising  its  taxing  power.  Inadvertently, 
an  unjust  discrimination  in  the  matter  of  taxation  was  made  in  favor 
of  the  relator  and  certain  other  corporations.  When  it  was  discov- 
ered that  an  unfair  discrimination  had  been  made  in  favor  of  the 
relator  and  other  corporations,  such  unfairness  was  corrected  by  the 
Act  of  1918.  I  do  not  see  that  it  makes  any  difference  whether  or 
not  the  relator  had  in  the  meantime  paid  the  franchise  tax  con- 
templated by  the  Act  of  1917.  Unless  there  was  a  contract  with  the 
relator,  which  very  clearly  there  was  not,  the  state,  by  virtue  of  its 
taxing  power,  could  correct  a  manifest  injustice  and  prevent  the  re- 
lator from  escaping  in  part  a  single  taxation,  which  was  the  effect 
of  the  Act  of  1917  as  applied  to  the  relator.  The  relator  has  given  up 


130  THE  BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 

or  yielded  no  advantage,  nor  has  it  been  prejudiced  in  any  particu- 
lar, nor  is  it  in  any  different  position  than  it  would  have  been  if  the 
Act  of  1917  had  originally  been  enacted  as  it  was  subsequently 
amended  in  1918.  It  is  urged  that  the  statute  (Sec.  219-d)  contem- 
plates the  assignability  of  the  credit  to  another  corporation  liable  to 
pay  taxes  under  Article  9-a,  and  that  this  indicates  a  contractural 
obligation  on  the  part  of  the  state.  As  between  the  state  and  the 
original  owner  of  the  credit  the  assignability  thereof  is  permitted  as 
a  privilege  or  favor,  and  is  not  granted  as  a  right.  It  is  not  neces- 
sary to  decide  what  the  effect  of  the  amendment  of  1918  might  be 
on  a  credit  previously  assigned.  That  question  does  not  exist  in 
this  case." 

Exemptions  of  corporations  from  local  taxes  on  personal 
property  assessed  for  school  purposes. — Issue  has  arisen  as  to 
whether  manufacturing  and  mercantile  corporations  taxable  under 
Article  9-a  are  exempt  from  taxation  for  local  school  purposes  in 
the  several  school  districts  where  personal  property  of  such  cor- 
porations is  found,  and  in  an  opinion  handed  down  by  Attorney- 
General  Lewis  on  December  18th,  1917,  reported  in  the  State  De- 
partment Reports,  No.  81,  February  1st,  1918,  it  was  held  that  such 
corporations  are  not  relieved  from  school  taxes  so  levied.  The 
Attorney-General  holds  in  his  opinion  that: 

"It  would  seem  that  if  the  Legislature  intended  that  such  exemption 
should  apply  to  taxes  payable  under  the  provisions  of  sections  410-413, 
or  article  33-a  of  the  Education  Law,  it  would  have  mentioned  such 
provisions  as  well  as  sections  12  and  182  of  the  Tax  Law,  inasmuch 
as  such  provisions  of  the  Education  Law  are  left  intact,  and  without 
change  as  to  the  right  of  the  school  districts  to  assess  and  tax  the 
personal  property  of  such  corporations  within  their  districts.  I  think 
it  more  reasonable,  more  consistent  and  more  in  harmony  with  the 
general  scheme  of  the  legislation  to  hold  that  the  legislature  intended 
that  the  school  districts  should  not  be  included  within  the  exemption 
provided  in  section  219-j.  No  reference  is  made  in  section  219-j  to 
such  districts  and  no  part  of  the  taxes  provided  by  the  act  are  to 
be  paid  to  them.  This  seems  significant,  particularly  as  the  provisions 
in  the  Education  Law  for  taxing  such  corporations  for  their  per- 
sonal property  within  each  district  are  preserved  to  the  respective 
districts. 

"If  it  sh'ould  be  held  that  the  personal  property  of  such  corpora- 
tions is  exempt,  under  section  219-j,  from  the  payment  of  school 


TEMPORARY   PROVISIONS;   SCHOOL  TAXES  131 

taxes,  then  it  follows  that  the  above  mentioned  sections  of  the  Educa- 
tion Law,  which  clearly  give  the  right  to  trustees  of  school  districts 
to  tax  all  such  corporations  for  their  personal  estate  for  school 
purposes,  are  repealed  by  implication  so  far  as  such  provisions  apply 
to  the  taxation  of  personal  property  of  such  corporations  for  school 
purposes.  Repeals  by  implication  are  not  favored  by  the  courts. 

"  'When  both  the  latter  and  former  statute  can  stand  together,  both 
will  stand  unless  the  former  is  expressly  repealed  or  the  legislative 
intent  to  repeal  is  very  manifest.'  People  ex  rel.  Kingsland  v.  Palmer, 
52  N.  Y.  83;  Hawkins  v.  Mayor,  64  id.  18;  Watson  v.  City  of  Kings- 
ton, 114  id.  94." 

If  the  opinion  of  the  Attorney- General  is  sustained  by  the  courts, 
this  peculiar  situation  will  arise — that  in  country  districts  where 
the  school  authorities  levy  their  own  taxes,  manufacturing  or  mer- 
cantile corporations  will  be  taxed  on  their  personal  property  for 
school  purposes,  while  in  cities  where  the  school  estimates  are 
included  in  the  general  city  budget,  there  will  be  no  machinery  for 
levying  school  taxes  on  such  personal  property. 


CHAPTER  XVIII. 

APPORTIONMENT  OF  TAX  BETWEEN  STATE  AND  CITIES,  TOWNS 

AND  VILLAGES. 

Two-thirds  of  the  tax  collected,  together  with  all  interest  and 
penalties,  is  paid  to  the  State,  the  other  third  is  paid  to  the  lo- 
calities, as  provided  by  Section  219-h  of  the  Tax  Law.  The  one^ 
third  paid  to  the  localities  is  disbursed  through  the  agency  of 
county  treasurers  as  follows : 

(1)  If  the  corporation  has  no  tangible  personal  property  with- 
in the  State,  such  payment  shall  be  made  to  the  county  treasurer 
of  the  county  in  which  is  located  the  principal  financial  office  of 
the  corporation. 

(2)  If  the  corporation  has  tangible  personal  property  in  but  one 
city  or  town  of  the  State,  as  shown  by  its  report  under  Section  211, 
such  payment  shall  be  made  to  the  county  treasurer  of  the  county 
in  which  the  city  or  town  is  located. 

(3)  If  the  corporation  has  tangible  personal  property  in  more 
than  one  city  or  town  of  the  State,  as  shown  by  its  report  under 
Section  211,  such  payment  shall  be  made  to  the  county  treasurers 
of  the  counties  in  which  such  cities  or  towns  are  located  in  the  pro- 
portion that  the  average  monthly  value  of  its  tangible  personal 
property  in  the  cities  and  towns  of  such  county,  as  shown  by  the 
report,  bear  to  the  average  monthly  value  of  its  total  tangible  per- 
sonal property  within  the  State. 

It  is  to  be  noted  that  the  proportion  distributed  among  the  lo- 
calities, under  the  amendment  of  1919  (Chapter  628),  is  not  de- 
pendent upon  the  amount  of  real  property  plus  tangible  personal 
property,  located  in  the  city,  town  or  village,  but  is  dependent  on 
the  amount  of  tangible  personal  property  so  located.  If  a  cor- 
poration owns  real  estate,  the  place  where  such  real  estate  is  lo- 

132 


APPORTIONMENT   OF   TAX  133 

cated  receives  the  benefit  in  the  payment  of  a  tax  in  full  on  such 
property,  and  under  the  1917  law,  the  town,  city  or  village  in 
which  such  real  estate  was  situated,  also  received  a  greater  propor- 
tion of  the  State  Income  Tax  than  localities  in  which  there  was 
no  real  estate.  There  was  no  change  in  substance  in  the  1919  law 
from  the  1918  Act,  but  the  words  "real  property  and"  were  omitted 
because  found  to  be  unnecessary  to  the  sense. 

A  concrete  example  under  paragraph  3  of  Section  219-h  is  that 
of  a  corporation  having  $4,000  of  tangible  personal  property  in  the 
town  of  Canaan,  Columbia  County,  $8,000  tangible  personal  prop- 
erty in  the  city  of  Hudson,  Columbia  County,  $8,000  of  tangible 
personal  property  in  New  York  City,  and  $12,000  of  real  estate 
in  New  York  City.  The  aggregate  amount  of  property,  real  and 
personal,  within  the  State  would  be  $32,000,  of  which  $12,000  of 
personalty  is  located  in  Columbia  County  and  $8,000  of  per- 
sonalty is  located  in  New  York  City.  If  the  corporation's  State 
Income  Tax  was  $2,700,  and  all  of  its  business  was  transacted 
in  the  State,  one-third  of  this  amount,  or  $900,  would  go  to  the 
localities,  to  be  distributed  in  the  proportion  of  4-20 :  8-20 :  8-20, 
which  is  the  same  as  4 :  8  :  8,  or  as  1 :  2  :  2. 

Under  the  1917  law,  the  distribution  would  be  as  4-32 :  8-32 : 
20-32,  or  as  1 :2 :5,  and  New  York  City  would  have  received  a  larger 
proportion  by  reason  of  the  location  of  real  estate  there.  This 
inequality  is  now  removed. 

Under  the  1919  Act,  the  county  treasurer  of  Columbia  County 
would  receive  12-20  or  $540  of  the  $900  apportioned  under  the 
law  to  the  localities,  and  the  City  Chamberlain  of  New  York  would 
receive  the  balance,  8-20  or  $360.  Of  the  $540  paid  to  the  county 
treasurer  of  Columbia  County,  $180  or  4-20  would  go  to  the  town 
of  Canaan  and  $360  or  8-20  would  go  to  the  city  of  Hudson. 

(4)  In  making  such  payment  to  a  county  treasurer,  the  State 
comptroller  shall  indicate  the  portion  to  be  credited  to  any  city 
or  town  within  the  county,  on  account  of  the  location  of  its  prin- 
cipal financial  office,  and  if  such  principal  office  or  property  is 
located  in  a  village,  shall  indicate  such  village.  If  located  in  a 
city  or  town  outside  of  a  village,  the  whole  of  said  portion  shall 


134  THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

be  paid  to  such  city  or  town;  if  such  principal  office  or  property 
is  located  in  a  village,  there  shall  be  paid  to  such  village,  such  part 
of  the  entire  amount  credited  to  the  town  as  the  entire  amount  of 
taxes  raised  by  said  village  or  portion  thereof  in  said  town,  during 
the  preceding  calendar  year  for  village  and  town  purposes,  bears 
to  the  aggregate  amount  so  raised  by  the  town  and  village  during 
the  preceding  calendar  year  for  town  and  village  purposes. 

If  in  the  example  given  under  subdivision  3  of  this  section  of 
the  law,  the  town  of  Canaan  contained  a  village  which  raised 
three-fourths  of  the  taxes  raised  by  the  town  and  village  together 
for  village  and  town  purposes,  the  village  would  receive  $135,  or 
three-fourths  of  the  sum  of  $180,  which  was  the  entire  amount 
credited  to  the  town. 

(5)  As  to  any  county  wholly  included  within  a  city,  such  pay- 
ment shall  be  made  to  the  chamberlain  or  chief  fiscal  officer,  and 
be  paid  to  the  general  fund  for  city  purposes.  As  to  any  county 
not  wholly  included  in  a  city,  the  county  treasurer  shall  within 
ten  days  after  the  receipt  thereof,  pay  to  the  chief  fiscal  officer 
of  a  city  or  the  chief  fiscal  officer  of  a  village  or  to  the  supervisor 
of  a  town,  the  portion  of  money  received  by  him  from  the  State 
comptroller,  to  which  such  city,  village  or  town  is  entitled,  which 
shall  be  credited  by  such  officer  to  general  city,  village  or  town 
purposes. 


CHAPTER  XIX. 
FRANCHISE  TAX  ON  BUSINESS  CORPORATIONS. 

(Article  9-a  of  the  Tax  Law.) 
Chapter  726,  Laws  of  1917,  as  amended  ly  Law»  of  1918  and  1919. 

(Text  of  the  Law] 
(1919  Amendments  in  Italics.) 

Section 

208.  Definitions. 

209.  Franchise  tax  on  corporations  based  on  net  income. 

210.  Corporations  exempted  from  article. 

211.  Reports  of  corporations  to  tax  commission. 

212.  Reports  by  corporation  on  basis  of  fiscal  year. 

213.  Reports  to  be  sworn  to;  forms. 

214.  Computation  of  tax. 

214-a.  Taxation  of  corporations  acquiring  assets  or  franchises  of  other 
corporations. 

215.  Rate  of  tax. 

216.  Penalty  for  failure  to  report. 
2T7.      Powers  of  tax  commission. 

218.  Revision  and  readjustment  of  accounts  by  tax  commission. 

219.  Review  of  determination  of  tax  commission  by  certiorari  and 

regulations  as  to  writ. 
219-a.  Audit  and  statement  of  tax. 
219-b.  Notice  of  fax. 
219-c.  When  tax  payable. 
219-d.  Corrections  and  changes. 
219-e.  Warrant  for  the  collection  of  taxes. 
219-f.  Action  for  recovery  of  taxes;  forfeiture  of  charter  by  delinquent 

corporations. 

219-g.  Deposit  of  revenues  collected. 
219-h.  Disposition  of  revenues  collected. 
219-i.    Secrecy  required  of  officials;  penalty  for  violation. 
219-j.    Exemption  from  certain  other  taxation. 
219-k.  Limitation  of  time. 
219-1.    Personal  property  defined. 

135 


136  THE  BUSINESS   CORPORATIONS  TAX    (ART.    9-A) 

§  208.     Definitions.     As  used  in  this  article: 

1.  The  term  "corporation"  includes  a  joint-stock  company  or  asso- 
ciation ; 

2.  The  words  "tangible  personal  property"  shall  be  taken  to  mean 
corporeal   personal   property,   such   as    machinery,    tools,   implements, 
goods,  wares  and  merchandise,  and  shall  not  be  taken  to  mean  money, 
deposits  in  bank,  shares  of  stock,  bonds,  notes,  credits  or  evidences  of 
an  interest  in  property  and  evidences  of  debt; 

3.  The  term  "entire  net  income"  means  the  total  net  income  before 
any  deductions  have  been  made  for  taxes  paid  or  to  be  paid  to  the 
Government  of  the  United  States  on  either  profits  or  net  income  or 
for  any  losses  sustained  by  the  corporation  in  other  fiscal  or  calendar 
years  whether  deducted  by  the  Government  of  the  United  States*  or  not. 

[SOURCE:—  Oh.  726,  L.  1917,  as  am'd  by  Ch.  417,  L.  1918,  and  by 
Ch.  628,  L.  1919.  The  1918  amendment  eliminated  the  definitions  of 
"manufacturing  corporation"  and  "'mercantile  corporation"  contained 
in  former  paragraphs  3  and  4.  The  1919  amendment  added  the  pres- 
ent paragraph  3.] 

§  209.  Franchise  tax  on  corporations  based  on  net  income. 
For  the  privilege  of  exercising  its  franchise  in  this  state  in  a  cor- 
porate or  organized  capacity  every  domestic  corporation,  and  for 
the  privilege  of  doing  business  in  this  state,  every  foreign  corpora- 
tion, except  corporations  specified  in  the  next  section,  shall  annually 
pay  in  advance  for  the  year  beginning  November  first  next  preceding 
an  annual  franchise  tax,  to  be  computed  by  the  tax  commission  upon 
the  basis  of  its  entire  net  income  for  its  fiscal  or  the  calendar  year 
next  preceding,  as  hereinafter  provided,  which  entire  net  income  is 
presumably  the  same  as  the  entire  net  income  upon  which  such  cor- 
poration is  required  to  pay  a  tax  to  the  United  States. 

[SOURCE: — Ch.  726,  L.  1917,  as  am'd  by  Ch.  276,  L.  1918,  and  by 
Ch.  628,  L.  1919.  The  1918  amendment  added  the  words  "presumably 
the  same  as  the  income  upon  which,"  and  the  1919  amendment  pre- 
fixed the  words  "entire  net"  to  income.] 

§  210.  Corporations  exempted  from  article.  Corporations 
wholly  engaged  in  the  purchase,  sale  and  holding  of  real  estate  for 
themselves,  holding  corporations  whose  principal  income  is  derived 
from  holding  the  stocks  and  bonds  of  other  corporations  and  corpora- 
tions liable  to  a  tax  under  sections  one  hundred  and  eighty-four  to 
one  hundred  and  eighty-nine  inclusive  of  this  chapter,  banks,  savings 
banks,  institutions  for  savings,  title  guaranty,  insurance  or  surety 


TEXT   OF   ART.    9-A  137 

corporations   shall  be   exempt   from  the  payment  of  the  taxes  pre- 
scribed by  this  article. 

[SOURCE: — Ch.  726,  L.  1917 — no  change.] 

§  211.  Reports  of  corporations  to  tax  commission.  Every  cor- 
poration taxable  under  this  article  as  well  as  foreign  corporations  hav- 
ing officers,  agents  or  representatives  within  the  state  shall  annually 
on  or  before  July  first,  or  within  thirty  days  after  the  making  of  its 
report  of  entire  net  income  to  the  United  States  treasury  department 
for  any  fiscal  or  calendar  year,  transmit  to  the  tax  commission  a  re- 
port in  the  form  prescribed  by  the  tax  commission  specifying:  1. 
The  name  and  location  of  the  principal  place  of  business  of  such  cor- 
poration, the  state  under  the  laws  of  which  organized,  and  the  date 
thereof;  the  amount  of  its  issued  capital  stock  and  the  kind  of  busi- 
ness transacted.  Any  corporation,  not  organized  under  the  laws  of  any 
state  within  the  United  States  shall  state  the  facts  in  relation  to  its 
entire  net  income  as  though  organized  under  the  laws  of  this  state. 

2.  The  amount  of  its  entire  net  income  for  its  preceding  fiscal  or 
the  preceding  calendar  year  as  shown  in  the  last  return  of  annual  net 
income  made  by   it  to  the   United   States  treasury   department.     // 
the  corporation  shall  claim  that  the  return  made  to  the  United  States 
treasury  department  was  inaccurate,  the  amount  claimed  by  it  to  be 
the  net  income  for  such  period  shall  be  specified.    If  any  deduction  has 
been  allowed  for  losses  sustained  by  the  corporation  in  prior  years  the 
amount  so  allowed  and  deducted  shall  be  specified. 

3.  The  average  monthly  value  for  the  fiscal  or  calendar  year  of  its 
real  property  and  tangible  personal  property  in  each  city,  village  or 
portion  of  a  town  outside  of  a  village  within  the  state,  and  the  aver- 
age monthly  value  of  all  its  real  property  and  tangible  personal  prop- 
erty wherever  located. 

4.  The  average  monthly  value  for  the  fiscal  or  calendar  year  of 
bills  and  accounts  receivable  for    (a)    personal  property  sold  by  the 
corporation  from  merchandise  manufactured  by  it  within  this  state; 
(b)  personal  property  sold  by  the  corporation  from  merchandise  owned 
by  it  and  located  within  the  state  at  the  time  of  the  acceptance  of 
the  order,  but  not  manufactured  by  it  within  this  state;  and  (c)  serv- 
ices performed,  based  on  all  orders  received  at  offices  maintained  by 
the  corporation  within  this  state;  excluding  bills  and  accounts  receiv- 
able arising  from  sales  made  from  a  stock  of  merchandise  or  other 
property  located  at  a  place  of  business  maintained  by  the  reporting 
corporation  within  this  state.     Also  the  average  total  monthly  value 
for  the  fiscal  or  calendar  year  of  bills  and  accounts  receivable  for 


138  THE  BUSINESS   CORPORATIONS  TAX    (ART.    9-A) 

(a)  personal  property  sold  by  the  corporation  from  merchandise 
manufactured  by  it  within  and  without  the  state,  (b)  personal  prop- 
erty sold  by  the  corporation  from  merchandise  owned  by  it  at  the 
time  of  the  acceptance  of  the  order  but  not  manufactured  by  it; 
and  (c)  services  performed,  based  on  orders  received  at  offices  main- 
tained by  the  corporation,  excluding  bills  and  accounts  receivable  on 
orders  filled  from  a  stock  of  merchandise  or  other  property  main- 
tained by  the  reporting  company. 

5.  The  average  total  value  for  the  fiscal  or  calendar  year  of  the 
stock  of  other  corporations  owned  by  the  corporation,  and  the  propor- 
tion of  the  average  value  of  the  stock  of  such  other  corporations  within 
the  state  of  New  York,  as  allocated  pursuant  to  section  two  hundred 
and  fourteen  of  this  chapter. 

6.  If  the  corporation  has  no  real  or  tangible  personal  property 
within  the  state,  the  city,  village  or  portion  of  a  town  outside  of  a 
village  in  the  state  in  which  is  located  the  office  in  which  its  prin- 
cipal financial  concerns  within  the  state  are  transacted. 

7.  Such  other  facts  as  the  tax  commission  may  require  for  the 
purpose  of  making  the  computation  required  by  this  article. 

8.  Any  corporation  taxable  hereunder  upon  its  entire  net  income 
may  omit  from  its  report  the  statements  required  by  subdivisions 
four  and  five  by  incorporating  in  its  report  a  consent  to  be  taxed 
upon  its  entire  net  income.     Corporations  having  no  net  income  shall, 
however,  complete  the  segregation  of  assets  in  every  case. 

[SouECE:—  Ch.  726,  L.  1917,  as  am'd  by  Ch.  417,  L.  1918  and  by 
Ch.  628,  L.  1919. 

The  1918  amendment  added  the  limitation  of  time  as  to  transmitting 
the  state  report  within  30  days  after  filing  report  with  the  Treasury 
Department.  The  amount  of  issued  capital  stock  was  to  "be  returned. 
It  also  permitted  corporations  to  return  net  income  on  basis  other 
than  that  determined  by  the  U.  S.  Treasury  Department,  where  that 
was  inaccurate.  There  were  changes  in  subdivision  4  avoiding  dupli- 
cation of  accounts  receivable  and  a  more  definite  statement  of  accounts 
receivable  for  services  rendered. 

The  1919  amendment  added  subdivision  5  and  the  words  italicized 
in  subdivisions  1,  2  and  8.] 

§  212.  Reports  by  corporation  on  basis  of  fiscal  year.  A  cor- 
poration which  reports  to  the  United  States  treasury  department  on 
the  basis  of  its  fiscal  year,  may  report  to  the  tax  commission  upon 
the  same  basis,  except  as  provided  in  section  two  hundred  and  four- 
teen-a  of  this  chapter. 


TEXT   OF   ART.    9-A  139 

[SOURCE:— Ch.  726,  L.  1917,  as  am'd  by  Ch.  628,  L.  1919.  The 
words  italicized  were  added  in  1919.] 

§  213.  Reports  to  be  sworn  to;  forms.  Every  report  required 
by  this  article  shall  have  annexed  thereto  the  affidavit  of  the  presi- 
dent, vice-president,  secretary  or  treasurer  of  the  corporation  to  the 
effect  that  the  statements  contained  therein  are  true.  Blank  forms 
of  the  report  shall  be  furnished  by  the  tax  commission,  on  applica- 
tion, but  failure  to  secure  such  a  blank  shall  not  release  any  corpo- 
ration from  the  obligation  of  making  a  report  herein  required.  The 
commission  may  require  a  further  or  supplemental  report  under  this 
article  to  contain  further  information  and  data  necessary  for  the 
computation  of  the  tax  herein  provided. 

[SouBCE:—  Ch.  726,  L.  1917 — no  change.] 

§  214.  Computation  of  tax.  If  the  entire  business  of  the  corpo- 
ration be  transacted  within  the  state,  the  tax  imposed  by  this  article 
shall  be  based  upon  the  entire  net  income  of  such  corporation  for 
such  fiscal  or  calendar  year  as  defined  in  section  two  hundred  and 
eight  of  this  chapter,  subject,  however,  to  any  correction  thereof  for 
fraud,  evasion  or  error,  as  ascertained  by  the  state  tax  commission. 

If  the  entire  business  of  such  corporation  be  not  transacted  within 
the  state,  the  tax  imposed  by  this  article  shall  be  based  upon  a  pro- 
portion of  such  entire  net  income,  to  be  determined  in  accordance  with 
the  following  rules: 

The  proportion  of  the  entire  net  income  of  the  corporation  upon 
which  the  tax  under  this  article  shall  be  based,  shall  be  such  portion 
of  the  entire  net  income  as  the  aggregate  of 

1.  The  average  monthly  value  of  the  real  property  and  tangible 
personal  property  within  the  state. 

2.  The  average  monthly  value  of  bills  and  accounts  receivable  for 
(a)    personal    property    sold   by   the   corporation    from    merchandise 
manufactured  by  it  within  this  state;    (b)   personal  property  sold  by 
the  corporation  from  merchandise  owned  by  it  and  located  within  the 
state  at  the  time  of  the  acceptance  of  the  order,  but  not  manufactured 
by  it  within  this  state;  and   (c)   services  performed  within  this  state, 
excluding  bills  and  accounts  receivable  arising  from  sales  made  from 
a  stock  of  merchandise  or  other  property  located  at  a  place  of  busi- 
ness maintained  by  the  reporting  corporation  without  this  state. 

3.  The   proportion   of  the  average  value   of  the   stocks   of  other 
corporations  owned  by  the  corporation,  allocated  to  the  state  as  pro- 
vided by  this  section,  but  not  exceeding  ten  per  centum  of  the  real 
and  tangible  personal  property  segregated  to  this  state  under  this 
article,  bears  to  the  aggregate  of 


140       THE  BUSINESS  CORPORATION'S  TAX  (ART.  9-A) 

4.  The  average  monthly  value  of  all  the  real  property  and  peraonal 
property  of  the  corporation,  wherever  located. 

5.  The   average   total   value   of   bills    and  accounts   receivable  for 
(a)  personal  property  sold  by  the  corporation  from  merchandise  manu- 
factured by  it  within  and  without  this  state;    (b)   personal  property 
sold  by  the  corporation  from  merchandise  owned  by  it  at  the  time 
of  acceptance  of  the  order  but  not  manufactured  by  it;  and   (c)   serv- 
ices performed  both  within  and  without  this  state,  based  on  orders 
received  at  offices  maintained  by  the  corporation,  excluding  bills  and 
accounts  receivable  on  orders  filled  from  a  stock  of  merchandise  or 
other  property  maintained  by  the  corporation. 

6.  The  average  total  value  of  stocks  of  other  corporations  owned 
by  the  corporation,  but  not  exceeding  ten  per  centum  of  the  aggre- 
gate real  and  tangible  personal  property  set  up  in  this  report. 

Real  property  and  tangible  personal  property  shall  be  taken  at  its 
actual  value  where  located.  The  value  of  share  stock  of  another  cor- 
poration owned  by  a  corporation  liable  hereunder  shall  for  purposes  of 
allocation  of  assets  be  apportioned  in  and  out  of  the  state  in  ac- 
cordance with  the  value  of  the  physical  property  in  and  out  of  the 
state  representing  such  share  stock. 

It  is  further  provided  that  every  domestic  corporation  exercising 
its  franchise  in  this  state  and  every  foreign  corporation  doing  busi- 
ness in  this  state,  other  than  those  exempted  by  section  two  hundred 
and  ten  of  this  chapter,  shall  be  subject  to  a  minimum  tax  of  not 
less  than  ten  dollars  and  not  less  than  one  mill  upon  each  dollar  of 
the  apportionment  of  the  face  value  of  its  issued  capital  stock  appor- 
tioned to  this  state,  which  shall  be  determined  by  dividing  the 
amount  of  the  real  and  tangible  personal  property  in  this  state  by 
the  entire  amount  of  the  real  and  tangible  personal  property  as 
shown  in  the  report,  and  multiplying  ijhe  quotient  by  the  face  value 
of  the  issued  capital  stock.  If  such  a  corporation  has  stock  without 
par  value,  then  the  base  of  the  tax  shall  be  on  such  a  portion  of  its 
paid  in  capital  as  its  real  and  tangible  personal  property  in  this 
state  bears  to  its  entire  real  and  tangible  personal  property. 

[SouKCE:— Ch.  726,  L.  1917,  as  am'd  ly  Ch.  417,  L.  1918  and  ly 
Ch.  628,  L.  1919.  The  1918  amendment  added  the  words  "Subject* 
however,  to  any  correction,  *  *  *"  <&?.,  to  the  end  of  the  first  sen- 
tence. It  also  changed  the  computation  of  the  tax  to  correspond  to 
the  1918  amendments  in  the  form  of  report  in  Section  211.  In  subdiv. 
6,  it  added  the  words  of  limitation  at  the  end  "but  not  exceeding  ten 
percentum  *  *  *."  It  also  added  the  minimum  tax  provision  con' 
tained  in  the  last  paragraph  of  Section  214. 


TEXT   OP   ART.    9-A  141 

The  1919  amendments  added  the  words'  italicized.] 

§  214-a.  Taxation  of  corporations  acquiring  assets  or  franchises 
of  other  corporations. — If  any  corporation  taxable  under  this  article 
shall  acquire  either  directly,  indirectly  or  by  merger  or  consolidation 
the  major  portion  of  the  assets  or  the  franchise  of  another  corporation 
or  of  corporations  exercising  any  franchise  or  franchises  or  doing  any 
business  in  this  state  during  any  year,  it  shall  include  in  its  own  next 
annual  return,  in  addition  to  its  won  entire  net  income,  so  much  of  the 
entire  net  income  of  tile  corporation  or  corporations'  whose  assets  or 
franchises  it  acquired  as  shall  not  have  been  used  or  included  in  meas- 
uring a  franchise  tax  to  this  state,  and  shall  be  taxed  upon  such  com- 
bined entire  net  incomes  for  the  year  to  ensue  and  as  hereinbefore 
provided.  The  provisions  for  a  minimum  tax  shall  be  applied  only 
when  under  such  provisions*  a  tax  will  result  in  excess  of  the  amount 
which  would  be  produced  by  a  tax  on  entire  net  income  as  hereinbefore 
provided  and  then  in  lieu  thereof. 

This  section  shall  be  construed  as  having  been  in  effect  as  of  the 
date  of  the  original  enactment  of  article  nine-a  of  the  tax  law,  as 
added  by  chapter  seven  hundred  and  twenty-six  of  the  laws  of  nine- 
teen hundred  and  seventeen. 

[SOURCE: — Added  by  Ch.  292-L.  1918.  See  Chapter  XI.,  supra, 
for  1918  part  omitted.] 

§  215.  Rate  of  tax.  The  tax  imposed  by  this  article  shall  be  at 
the  rate  of  four  and  one-half  per  centum  of  the  entire  net  income  of 
the  corporation  or  portion  thereof  taxable  within  the  state,  deter- 
mined as  provided  by  this  article. 

[SOURCE: — Ch.  726,  L.  1917,  as  am'd  by  Ch.  628,  L.  1919.  The  rate 
of  tax  was  changed  from  three  to  four  and  one-half  per  centum.] 

§  216.  Penalty  for  failure  to  report.  Any  corporation  which 
fails  to  make  any  report  required  by  this  article  shall  be  liable  to  a 
penalty  of  not  more  than  five  thousand  dollars  to  be  paid  to  the  state, 
to  be  collected  in  a  civil  action,  at  the  instance  of  the  tax  commission; 
and  any  officer  of  any  such  corporation  who  makes  a  fraudulent  return 
or  statement  with  intent  to  defeat  or  evade  the  payment  of  the  taxes 
prescribed  by  this  article  sliall  be  liable  to  a  penalty  of  not  more  than 
one  thousand  dollars,  to  be  collected  in  like  manner.  All  moneys  re- 
covered as  penalties,  for  a  failure  to  report  or  for  making  fraudulent 
reports  shall  be  paid  to  the  state  comptroller. 

[SOURCE:—  Ch.  726,  L.  1917 — no  change.] 

§  217.  Powers  of  tax  commission.  The  tax  commission  may  for 
good  cause  shown  extend  the  time  within  which  any  corporation  is 


142  THE  BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 

required  to  report  by  this  article.  If  any  report  required  by  this 
article  be  not  made  as  herein  required,  the  tax  commission  is  author- 
ized to  make  an  estimate  of  the  net  income  of  such  corporation  and 
of  the  amount  of  tax  due  under  this  article,  from  any  information 
in  its  possession,  and  to  order  and  state  an  account  according  to 
such  estimate  for  the  taxes,  penalties  and  interest  due  the  state 
from  such  corporation.  If  the  tax  imposed  upon  any  corporation 
under  this  article  is  based  upon  an  estimate  as  provided  in  this  sec- 
tion, the  tax  commission  shall  notify  such  corporation  of  a  time  and 
place  at  which  opportunity  will  be  given  to  the  corporation  to  be 
heard  in  respect  thereof.  Such  notice  shall  be  mailed  to  the  post- 
office  address  of  the  corporation.  All  the  authority  and  powers  con- 
ferred on  the  tax  commission  by  the  provisions  of  section  one  hundred 
and  ninety-five  of  the  tax  law  shall  have  full  force  and  effect  in  re- 
spect of  corporations  which  may  be  liable  hereunder. 
[SOURCE: — Ch.  726,  L.  1917 — no  change.'} 

§  218.  Revision  and  readjustment  of  accounts  by  tax  commis- 
sion. If  an  application  for  revision  be  filed  with  the  commission 
by  a  corporation  against  which  an  account  is  audited  and  stated 
within  one  year  from  the  time  any  such  account  shall  have  been 
audited  and  stated,  the  commission  shall  grant  a  hearing  thereon  and 
if  it  shall  be  made  to  appear  upon  any  such  hearing  by  evidence  sub- 
mitted to  it  or  otherwise,  that  any  such  account  included  taxes  or 
other  charges  which  could  not  have  been  lawfully  demanded,  or  that 
payment  has  been  illegally  made  or  exacted  of  any  such  account,  the 
commission  shall  resettle  the  same  according  to  law  and  the  facts,  and 
adjust  the  account  for  taxes  accordingly,  and  shall  send  notice  of  its 
determination  thereon  to  the  corporation  and  state  comptroller  forth- 
with. 

[SOURCE:—  Ch.  726,  L.  1917 — no  change.} 

§  219.  Review  of  determination  of  tax  commission  by  cer- 
tiorari  and  regulations  as  to  writ.  The  determination  of  the  com- 
mission upon  any  application  made  to  it  by  any  corporation  for  re- 
vision and  resettlement  of  any  account,  as  prescribed  by  this  article, 
may  be  reviewed  in  the  manner  prescribed  by  and  subject  to  the  pro- 
visions of  section  one  hundred  and  ninety-nine  of  this  chapter. 

Xo  certiorari  to  review  any  audit  and  statement  of  an  account  or 
any  determination  by  the  commission  under  this  article  shall  be 
granted  unless  notice  of  application  therefor  is  made  within  thirty 
days  after  the  service  of  the  notice  of  such  determination.  Eight 
days'  notice  shall  be  given  to  the  commission  of  the  application  for 
such  wfit.  The  full  amount  of  the  taxes,  percentage,  interest  and 


TEXT   OF    ART.    9-A  143 

other  charges  audited  and  stated  in  such  account  must  be  deposited 
with  the  state  comptroller  before  making  the  application  and  an 
undertaking  filed  with  the  commission,  in  such  amount  and  with 
such  sureties  as  a  justice  of  the  supreme  court  shall  approve,  to  the 
effect  that  if  such  writ  is  dismissed  or  the  determination  of  the  com- 
mission affirmed,  the  applicant  for  the  writ  will  pay  all  costs  and 
charges  which  may  accrue  against  it  in  the  prosecution  of  the  writ, 
including  costs  of  all  appeals. 

[SouBCE:—  Ch.  726,  L.  1917,  as  am'd  by  Ch.  417,  L.  1918.  The  1918 
amendment  added  the  words  "and  regulations  as  to  writ"  to  the  begin- 
ning of  the  section  and  struck  out  the  words  "and  two  hundred"  before 
the  last  three  words  of  the  first  paragraph.  It  also  added  the  entire 
last  paragraph.] 

§  219-a.  Audit  and  statement  of  tax.  On  or  before  the  first  day 
of  December  in  each  year  the  tax  commission  shall  audit  and  state  the 
account  of  each  corporation  known  to  be  liable  to  a  tax  under  this 
article,  for  its  preceding  fiscal  or  the  preceding  calendar  year,  and 
shall  compute  the  tax  thereon  and  forthwith  notice  the  same  to  the 
state  comptroller  for  collection.  The  tax  commission  shall  determine 
the  portion  of  such  tax  to  be  distributed  to  the  several  counties  and 
the  amounts  to  be  credited  to  the  several  cities  or  towns  thereof, 
when  the  same  is  collected,  and  shall  indicate  such  determination  in 
noticing  such  tax  to  the  state  comptroller.  If  the  corporation  has 
real  property  or  tangible  personal  property  located  in  a  village,  or  if 
it  has  no  real  or  tangible  personal  property  in  the  state  but  the  office 
in  which  its  principal  financial  concerns  within  the  state  are  trans- 
acted is  located  in  a  village,  the  tax  commission  shall  indicate  such 
facts  to  the  state  comptroller,  with  the  name  of  the  village  in  which 
such  office  or  property  is  located. 

[SOURCE:—  Ch.  726,  L.  1917,  as  am'd  by  Ch.  628,  L.  1919.  The  1919 
amendment  changed  the  date  of  auditing  and  stating  the  tax  from 
November  1st  to  December  1st.] 

§  219-b.  Notice  of  tax.  Every  report  required  by  section  two 
hundred  and  eleven  of  this  chapter  shall  contain  the  post-office  address 
of  the  corporation  and  lines  or  spaces  upon  which  the  corporation 
shall  enter  its  entire  net  income.  Notice  of  tax  assessment  shall  be 
sent  by  mail  to  the  post-office  address  given  in  the  report,  and  the 
record  that  such  notice  has  been  sent  shall  be  presumptive  evidence 
of  the  giving  of  the  notice  and  such  record  shall  be  preserved  by  the 
tax  commission. 

[SOURCE:— Ch.  726,  L.  1917 — no  change.] 


144  THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

§  219-c.  When  tax  payable.  The  tax  hereby  imposed  shall  be 
paid  to  the  state  comptroller  on  or  before  the  first  day  of  January 
of  each  year,  or  within  thirty  days  after  notice  of  the  tax  has  been 
given  as  provided  in  section  two  hundred  and  nineteen-b  of  this  chap- 
ter if  such  notice  is  given  subsequent  to  the  first  day  of  December  of 
the  year  for  which  such  tax  is  imposed.  If  such  tax  be  not  so  paid, 
or  in  the  case  of  additional  taxes,  if  not  paid  within  thirty  days 
after  notice  of  such  additional  tax  has  been  given  as  provided  in 
section  two  hundred  and  nineteen-d  of  this  chapter  and  such  notice 
of  additional  tax  is  given  subsequent  to  the  first  day  of  December 
of  the  year  for  which  such  additional  tax  is  imposed,  the  corporation 
liable  to  such  tax  shall  pay  to  the  state  comptroller,  in  addition  to 
the  amount  of  such  tax,  or  additional  tax,  ten  per  centum  of  such 
amount,  plus  one  per  centum  for  each  month  the  tax  or  additional 
tax  remains  unpaid.  Each  such  tax  or  additional  tax  shall  be  a  lien 
upon  and  binding  upon  the  real  and  personal  property  of  the  corpo- 
ration liable  to  pay  the  same  from  the  time  when  it  is  payable  until 
fhe  same  is  paid  in  full. 

[SOUBCE:— Ch.  726,  L.  1917,  as  am'd  by  Ch.  271,  L.  1918,  and  by 
Ch  628,  L.  1919.  The  1918  amendment  added  the  alternative  provision 
in  the  first  sentence  limiting  the  time  of  payment  to  thirty  days  after 
notice.  It  also  changed  the  second  sentence  as  to  additional  taxes. 
The  1919  amendment  eliminates  the  provision  in  the  1918  amendment 
as  to  waiver  of  penalty  for  taxes  for  the  year  beginning  Nov.  1,  1917.] 

§  219-d.  Corrections  and  changes.  If  the  amount  of  the  net  in- 
come for  any  year  of  any  corporation  taxable  under  this  article  as 
returned  to  the  United  States  treasury  department  is  changed  or  cor- 
rected by  the  commissioner  of  internal  revenue  or  other  officer  of  the 
United  States  or  other  competent  authority,  such  corporation,  within 
ten  days  after  receipt  of  notice  of  such  change  or  correction,  shall 
make  return  under  oath  or  affirmation  to  the  tax  commission  of  such 
changed  or  corrected  net  income,  and  shall  concede  the  accuracy  of 
such  determination  or  state  wherein  it  is  erroneous. 

The  tax  commission  shall  ascertain  from  such  return  and  any 
other  information  in  the  possession  of  the  commission,  the  entire  net 
income  of  such  corporation  for  the  fiscal  or  calendar  year  for  which 
such  change  or  correction  has  been  made  by  such  commissioner  of  in- 
ternal revenue  or  other  officer  or  authority.  All  the  authority  con- 
ferred on  the  tax  commission  by  the  provisions  of  section  one  hun- 
dred and  ninety-five  of  this  chapter  is  hereby  granted  to  it  in  re- 
spect to  the  ascertainment  of  such  entire  net  income.  The  tax  com- 
mission shall  thereupon  reaudit  and  restate  the  account  of  such  cor- 


TEXT   OF   ART.    9-A  145 

poration  for  taxes  based  upon  the  entire  net  income  for  such  fiscal 
or  calendar  year,  such  reaudit  to  be  according  to  the  entire  net  income 
so  ascertained  by  the  tax  commission.  The  proceedings  and  determi- 
nation of  the  tax  commission  in  the  making  of  such  reassessment  may 
be  revised  and  readjusted  and  reviewed  in  the  manner  provided  by 
sections  two  hundred  and  eighteen  and  two  hundred  and  nineteen  of 
this  chapter,  as  in  the  case  of  an  original  assessment  of  the  tax.  If 
from  such  reassessment  it  appears  that  such  corporation  shall  have 
paid  under  this  article  an  excess  of  tax  for  the  year  for  which  such 
reassessment  is  made,  the  tax  commission  shall  return  a  statement 
of  the  amount  of  such  excess  to  the  comptroller,  who  shall  credit  such 
corporation  with  such  amount.  Such  credit  may  be  assigned  by  the 
corporation  in  whose  favor  it  is  allowed  to  a  corporation  liable  to 
pay  taxes  under  this  article,  and  the  assignee  of  the  whole  or  any 
part  of  such  credit  on  filing  with  the  commission  such  assignment 
shall  thereupon  be  entitled  to  credit  upon  the  books  of  the  comptroller 
for  the  amount  thereof  on  the  current  account  for  taxes  of  such 
assignee  in  the  same  way  and  with  the  same  effect  as  though  the 
credit  had  originally  been  allowed  in  favor  of  such  assignee.  If  from 
such  reassessment  it  appears  that  an  additional  tax  is  due  from  such 
corporation  for  such  year,  such  corporation  shall,  within  thirty  days 
after  notice  has  been  given  as  provided  in  section  two  hundred  and 
nineteen-b  of  this  chapter  by  the  tax  commission,  pay  such  additional 
tax. 

[SouECE:—  Ch.  726,  L.  1917,  as  am'd  ly  Ch.  276,  L.  1918  and  ly 
Ch.  628,  L.  1919. 

The  1918  amendment  added  the  last  fourteen  words  to  the  first  para- 
graph of  section  219-d,  and  all  the  part  of  the  second  paragraph  be- 
ginning "ascertain  from  such  return"  to  and  including  "as  in  the 
case  of  an  original  assessment  of  the  taw."  It  changed  the  word  "com- 
putation" to  "reassessment." 

The  1919  amendment  prefixed  the  word  "entire"  to  income,  wherever 
it  occurs  in  the  second  paragraph.] 

§  219-e.  Warrant  for  the  collection  of  taxes.  If  the  tax  im- 
posed by  this  article  be  not  paid  within  thirty  days  after  the  same 
becomes  due,  unless  an  appeal  or  other  proceeding  shall  have  been 
taken  to  review  the  same,  the  comptroller  may  issue  a  warrant  under 
his  hand  and  official  seal  directed  to  the  sheriff  of  any  county  of  the 
state  commanding  him  to  levy  upon  and  sell  the  real  and  personal 
property  of  the  corporation  owning  *  the  same,  found  within  his  coun- 

*  So  in  the  original ;  probably  intended  for  "owing."  See  also  Sec- 
tion 380  Tax  Law.  Part  IV  infra. 


146  THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

ty,  for  the  payment  of  the  amount  thereof,  with  the  added  penalties,  in- 
terest and  the  cost  of  executing  the  warrant,  and  to  return  such  war- 
rant to  the  comptroller  and  pay  to  him  the  money  collected  by  virtue 
thereof  by  a  time  to  be  therein  specified,  not  less  than  sixty  days 
from  the  date  of  the  warrant.  Such  warrant  shall  be  a  lien  upon 
and  shall  bind  the  real  and  personal  property  of  the  corporation 
against  whom  it  is  issued  from  the  time  an  actual  levy  shall  be  made 
by  virtue  thereof.  The  sheriff  to  whom  any  such  warrant  shall  be 
directed  shall  proceed  upon  the  same  in  all  respects,  with  like  effect, 
and  in  the  same  manner  as  prescribed  by  law  in  respect  to  executions 
issued  against  property  upon  judgments  of  a  court  of  record,  and 
shall  be  entitled  to  the  same  fees  for  his  services  in  executing  the 
warrant,  to  be  collected  in  the  same  manner. 

[SOURCE:—  Ch.  726,  L.  1917 — no  change.] 

§  219-f.  Action  for  recovery  of  taxes;  forfeiture  of  charter  by 
delinquent  corporations.  Action  may  be  brought  at  any  time  by 
the  attorney-general  at  the  instance  of  the  comptroller,  in  the  name 
of  the  state,  to  recover  the  amount  of  any  taxes,  penalties  and  in- 
terest due  under  this  article.  If  such  taxes  be  not  paid  within  one 
year  after  the  same  be  due,  and  the  comptroller  is  satisfied  that  the 
failure  to  pay  the  same  is  intentional  he  shall  so  report  to  the  attor- 
ney-general, who  shall  immediately  bring  an  action  in  the  name  of 
the  people  of  the  state,  for  the  forfeiture  of  the  charter  or  franchise 
of  any  corporation  failing  to  make  such  payment,  and  if  it  be  found 
that  such  failure  was  intentional,  judgment  shall  be  rendered  in  each 
action  for  the  forfeiture  of  such  charter  and  for  its  dissolution  if  a 
domestic  corporation  and  if  a  foreign  corporation  for  the  annulment 
of  its  franchise  to  do  business  in  this  state. 

[SOUECE: — Ch.  726,  L.  1917 — no  change.] 

§  219-g.  Deposit  of  revenues  collected.  The  state  comptroller 
shall  deposit  all  taxes,  interest  and  penalties  collected  under  this 
article  in  responsible  banks,  banking  houses  or  trust  companies  in  the 
state  which  shall  pay  the  highest  rate  of  interest  to  the  state  for 
such  deposit,  to  the  credit  of  the  State  comptroller  on  account  of  the 
franchise  tax.  And  every  such  bank,  banking  house  or  trust  com- 
pany shall  execute  and  file  in  his  office  an  undertaking  to  the  state, 
in  the  sum,  and  with  such  sureties,  as  are  required  and  approved  by 
the  comptroller,  for  the  safe  keeping  and  prompt  payment  on  legal 
demand  therefor  of  all  such  moneys  held  by  or  on  deposit  in  such 
bank,  banking  house  or  trust  company,  with  interest  thereon  on  daily 
balances  at  such  rate  as  the  comptroller  may  fix.  Every  such  under- 
taking shall  have  indorsed  thereon,  or  annexed  thereto,  the  approval 


TEXT   OF   ART.    9-A  147 

of  the  attorney-general  as  to  its  form.  The  state  comptroller  shall 
on  the  first  day  of  each  month  make  a  verified  return  to  the  state 
treasurer  of  all  revenues  received  by  him  under  this  article  during 
the  preceding  month,  stating  by  whom  and  when  paid,  and  shall  credit 
himself  with  all  payments  made  to  county  treasurers  since  his  last 
previous  return  pursuant  to  section  two  hundred  and  nineteen-h  of 
this  chapter. 

[SOURCE:— Ch.  726,  L.  1917— no  change.] 

§  219-h.  Disposition  of  revenues  collected.  The  state  comp- 
troller shall  on  or  before  the  twenty-fifth  day  of  each  month  pay 
into  the  state  treasury  to  the  credit  of  the  general  fund  all  interest 
and  penalties  and  two-thirds  of  all  taxes  received  by  him  under  this 
article  during  the  preceding  calendar  month,  as  appears  from  the  re- 
turn made  by  him  to  the  state  treasurer.  The  balance  of  all  taxes 
collected  and  received  by  him  under  this  article  from  any  corpora- 
tion, as  appears  from  the  return  made  by  him  to  the  state  treasurer, 
shall,  on  or  before  the  twenty-fifth  day  of  April,  July,  October  and 
January,  for  the  quarter  ending  with  the  last  day  of  the  preceding 
month,  be  distributed  and  paid  by  him  to  the  treasurers  of  the  sev- 
eral counties  of  the  state  and  disposed  of  by  such  treasurers,  in  ac- 
cordance with  the  following  rules: 

1.  If   the   corporation   has   no   tangible   personal    property   within 
the  state,  such  payment  shall  be  made  to  the  county  treasurer  of  the 
county  in  which  is  located  the  office  at  which  its  principal  financial 
concerns  within  the  state  are  transacted; 

2.  If   the   corporation   has   tangible   personal   property,    as    shown 
by  its  report  pursuant  to  section  two  hundred  and  eleven,  in  but  one 
city  or  town  of  the  state,  such  payment  shall  be  made  to  the  county 
treasurer  of  the  county  in  which  such  city  or  town  is  located; 

3.  If  the  corporation  has  tangible  personal  property  in  more  than 
one  city  or  town  of  the  state,  as  shown  by  its  report  pursuant  to 
section  two  hundred  and  eleven,  such  payments  shall  be  made  to  the 
county  treasurers  of  the  counties  in  which  such  cities  or  towns  are 
located   in    the   proportion   that   the    average    monthly    value    of   the 
tangible    personal    property    of    such    corporation    in    the    cities    and 
towns  of  such  county  bears  to  the  average  monthly  value  of  all  its 
tangible  personal  property  within  the  state; 

4.  In  making  such  payment  to  a  county  treasurer,  the  state  comp- 
troller shall  indicate  the  portion  thereof  to  be  credited  to  any  city 
or  town  within  the  county  on  account  of  the  location  therein  of  its 
principal  financial  office  or  property  as  determined  by  the  preceding 


148  THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

subdivisions,  and  if  such  principal  financial  office  or  property  is 
located  in  a  village  shall  indicate  the  village  in  which  it  is  located; 
if  such  principal  financial  office  or  property  is  located  in  a  city  or 
in  a  town  outside  of  a  village,  the  whole  of  such  portion  shall  be 
paid  to  such  city  or  town  as  hereinafter  provided;  if  such  principal 
financial  office  or  property  is  located  in  a  village,  there  shall  be  paid 
to  such  village  as  hereinafter  provided  such  a  part  of  the  entire 
amount  credited  to  the  town  as  the  entire  amount  of  taxes  raised  by 
said  village,  or  portion  thereof  in  said  town,  during  the  preceding 
calendar  year  for  village  and  town  purposes  bears  to  the  aggregate 
amount  so  raised  by  the  town  and  village  during  the  preceding  cal- 
endar year  for  town  and  village  purposes; 

5.  As  to  any  county  wholly  included  within  a  city  such  payment 
shall  be  made  to  the  chamberlain  or  other  chief  fiscal  officer  of  such 
city  and  be  paid  into  the  general  fund  for  city  purposes; 

6.  As  to  any  county  not  wholly  included  within  a  city,  the  county 
treasurer    shall   within    ten   days   after    the   receipt   thereof   pay   to 
the  chief  fiscal  officer  of  a  city  or  to  the  chief  fiscal  officer  of  a  vil- 
lage or  to  the  supervisor  of  a  town  the  portion  of  money  received  by 
him  from  the  state  comptroller  to  which  such  city,  village  or  town 
is   entitled,  which   shall  be  credited  by   such  officer   to  general  city, 
village  or  town  purposes. 

[SOUBCE:—  Ch.  726,  L.  1917,  as  am'd  by  Ch.  417,  L.  1918  and  by 
Ch.  628,  L.  1919. 

The  1918  amendment  changed  the  date  of  payment  from  the  10th 
to  25th  day  of  each  month,  all  the  interest  and  penalties  to  be  retained 
by  the  state,  and  the  basis  of  apportionment  of  the  tax  in  subdivs.  1, 
2  and  3  was  to  be  tangible  personal  property.  The  basis  of  apportion- 
ment between  to  ion  and  village  was  changed  as  shown  in  the  last  sen- 
tence of  subdiv.  4. 

The  1919  amendment  eliminates  the  superfluous  words  "real  prop- 
erty and"  at  the  end  of  subdiv.  3.J 

§  219-i.     Secrecy  required  of  officials;  penalty  for  violation. 

1.  Except  in  accordance  with  proper  judicial  order  or  as  other- 
wise provided  by  law,  it  shall  be  unlawful  for  any  tax  commissioner, 
agent,  clerk,  or  other  officer  or  employee  to  divulge  or  make  known 
in  any  manner  the  amount  of  income  or  any  particulars  set  forth  or 
disclosed  in  any  report  under  this  article.  Nothing  herein  shall  be 
construed  to  prohibit  the  publication  of  statistics  so  classified  as  to 
prevent  the  identification  of  particular  reports  and  the  items  thereof, 
or  the  publication  of  delinquent  lists  showing  the  names  of  taxpayers 
who  have  failed  to  pay  their  taxes  at  the  time  and  in  the  manner 


TEXT   OF   ART.    9-A  149 

provided  by  section  two  hundred  and  nineteen-c  together  with  any 
relevant  information  which  in  the  opinion  of  the  comptroller  may 
assist  in  the  collection  of  such  delinquent  taxes;  or  the  inspection  by 
the  attorney-general  or  other  legal  representatives  of  the  state  of 
the  report  of  any  corporation  which  shall  bring  action  to  set  aside 
or  review  the  tax  based  thereon,  or  against  whom  an  action  or  pro- 
ceeding has  been  instituted  in  accordance  with  the  provisions  of  sec- 
tions two  hundred  and  sixteen  or  two  hundred  and  nineteen-f  of  this 
article. 

Reports  shall  be  preserved  for  three  years,  and  thereafter  until  the 
state  tax  commission  orders  them  to  be  destroyed; 

2.  Any  offense  against  the  foregoing  provision  shall  be  punished 
by  a  fine  not  exceeding  one  thousand  dollars  or  by  imprisonment  not 
exceeding  one  year,  or  both,  at  the  discretion  of  the  court  and  if 
the  offender  be  an  officer  or  employee  of  the  state  he  shall  be  dis- 
missed from  office  and  be  incapable  of  holding  any  public  office  in 
this  state  for  a  period  of  five  years  thereafter. 

[SouBCE:— Ch.  726,  L.  1917 — no  change.] 

§  219-j.  Exemptions  from  certain  other  taxation.  After  this 
article  takes  effect,  corporations  taxable  thereunder  shall  not  be  as- 
sessed on  any  personal  property  or  capital  stock,  as  provided  for  in 
section  twelve  of  this  chapter,  except  for  taxes  levied  for  the  fiscal 
year  ending  December  thirty-first,  nineteen  hundred  and  seventeen, 
in  taxing  districts  in  which  the  fiscal  year  is  coterminous  with  the 
calendar  year;  and  where  taxes  are  required  by  law  to  be  levied 
for  local  purposes  for  a  fiscal  year  beginning  in  nineteen  hundred 
and  seventeen  and  ending  in  nineteen  hundred  and  eighteen,  such 
corporations  shall  not  be  assessed  on  any  personal  property  or  capital 
stock,  as  provided  for  in  section  twelve  of  this  chapter,  except  for 
taxes  levied  for  such  fiscal  year. 

If,  in  any  taxing  district,  by  reason  of  the  provisions  of  this 
section  as  originally  enacted  by  chapter  seven  hundred  and  twenty- 
six  of  the  laws  of  nineteen  hundred  and  seventeen,  the  assessment 
of  the  personal  property  or  capital  stock  of  any  such  corporation  has 
been  omitted  from  the  assessment-roll  for  the  fiscal  year  specifically 
referred  to  in  the  first  paragraph  of  this  section,  the  assessors  of  such 
district  shall  enter  the  same  in  the  assessment-roll  first  prepared  after 
this  act  goes  into  effect,  at  the  valuation  of  such  fiscal  year,  or  if 
not  then  valued,  at  such  valuation  as  the  assessors  shall  determine 
for  such  year.  Before  finally  fixing  such  valuation  the  assessors  shall 
give  to  such  corporation  a  notice  of  at  least  five  days  and  an  oppor- 
tunity to  be  heard  with  reference  thereto.  Such  property  shall  be 


150  THE   BUSINESS    CORPORATIONS   TAX    (ART.    9-A) 

taxed  at  the  rate  per  centum  of  the  fiscal  year  in  which  it  was  omitted 
from  the  assessment-roll.  The  whole  amount  of  tax  so  imposed  on 
the  personal  property  or  capital  stock  of  such  corporations  shall  be 
deducted  from  the  aggregate  of  taxation  otherwise  to  be  levied  on  such 
taxing  district  for  the  current  year,  before  such  tax  is  levied. 

After  this  article  takes  effect  corporations  taxable  thereunder  shall 
not  be  required  to  pay  the  franchise  tax  imposed  by  section  one  hun- 
dred and  eighty-two  of  this  chapter,  or  to  make  the  reports  called 
for  in  sections  twenty-seven  and  one  hundred  and  ninety-two  of  this 
chapter,  except  that,  for  the  purpose  of  assessing  the  personal  prop- 
erty or  capital  stock  of  such  corporations  as  specifically  provided  in 
this  section,  such  corporations  may  be  required  to  make  the  report 
called  for  in  such  section  twenty-seven.  Nothing  herein  shall  be  con- 
strued to  impair  the  obligation  to  pay  franchise  taxes  due  on  or 
before  the  fifteenth  day  of  January,  nineteen  hundred  and  seventeen, 
or  taxes  on  personal  property  or  capital  stock  assessed  as  specifically 
provided  in  this  section,  whether  such  taxes  have  been  or  may  here- 
after be  assessed.  But  if  any  corporation  taxed  under  this  article 
shall  have  paid %  or  shall  hereafter  pay  taxes  on  personal  property  or 
capital  stock  assessed  as  specifically  provided  in  this  section,  for  any 
part  of  the  calendar  year  nineteen  hundred  and  eighteen,  such  cor- 
poration shall  be  entitled  to  credit,  with  interest,  as  hereinafter 
provided,  for  the  amount  of  such  part  of  the  taxes  so  paid  locally  as 
the  portion  of  the  year  nineteen  hundred  and  eighteen  for  which  such 
taxes  shall  have  been  paid  bears  to  the  entire  calendar  year.  And 
if,  in  any  taxing  district,  by  reason  of  the  provisions  of  this  section 
as  originally  enacted  by  chapter  seven  hundred  and  twenty-six  of  the 
laws  of  nineteen  hundred  and  seventeen,  any  such  corporation  shall 
have  paid  or  shall  hereafter  pay  taxes  on  personal  property  or  capital 
stock  for  the  year  ending  December  thirty-first,  nineteen  hundred 
and  eighteen,  such  corporation  shall  be  entitled  to  credit,  with  in- 
terest, as  hereinafter  provided,  for  the  amount  of  taxes  so  paid  lo- 
cally. 

Such  credits  shall  be  granted  by  the  tax  commission  on  the  sub- 
mission of  satisfactory  proofs  that  the  corporation  is  entitled  thereto. 
The  tax  commission  shall  forthwith  notify  the  corporation  and  the 
comptroller  of  any  credft  so  granted.  Such  credit  may  be  used  by 
the  corporation  entitled  thereto  in  the  payment  of  taxes  charged 
against  it  under  this  article,  or  such  credit  or  any  part  thereof  may 
be  assigned  by  the  corporation  in  whose  favor  it  is  allowed  to  a  cor- 
poration liable  to  pay  taxes  under  this  article,  and  the  assignee  of 
the  whole  or  any  part  of  such  credit  on  filing  with  the  comptroller 
such  assignment  shall  thereupon  be  entitled  to  credit  upon  the  books 


TEXT  OF  AKT.    9-A  151 

of  the  comptroller  for  the  amount  thereof  on  the  account  for  taxes 
of  such  assignee  in  the  same  way  and  with  the  same  effect  as  though 
the  credit  had  originally  been  allowed  in  favor  of  such  assignee. 

Upon  receipt  of  notice  from  the  tax  commission  of  any  credit  under 
tJtis  article  the  comptroller  may  refund  to  the  corporation,  out  of  the 
current  revenues  in  his  hands  received  under  this  article,  the  amount 
of  such  excess  paid  "by  the  corporation,  without  interest,  and  shall 
charge  the  amount  or  amounts  of  such  excess  against  the  state  treas- 
ury and  the  taxing  district  or  districts  in  the  proportions  that  such 
excess  was  originally  credited  or  paid.  In  case  the  amount  of  current 
revenues  credited  to  any  taxing  district  under  this  article  is  not  equal 
to  the  charge  against  any  such  taxing  district  on  account  of  such  re- 
fund, further  revenues  credited  to  such  taxing  district  shall  first  be 
applied  by  the  comptroller  to  the  liquidation  of  such  charge. 

[SOURCE:—  Ch.  726,  L.  1917,  as  am'd  by  Oh.  271,  L.  1918,  and  by 
Ch.  138,  L.  1919. 

The  1918  amendment  struck  from  219-/  the  provision  as  to  exemption 
of  fixtures  and  segregated  it  to  a  new  section  (219-Z).  Most  of  Sec- 
tion 219-/,  as  it  now  stands,  was  added  by  the  amendment  of  1918,  with 
the  exception  of  the  last  paragraph  as  to  a  refund  by  the  comptroller, 
which  was  added  by  the  amendment  of  1919.] 

§  219-k.  Limitation  of  time.  The  provisions  of  the  code  of  civil 
procedure  relative  to  the  limitation  of  time  of  enforcing  a  civil  rem- 
edy shall  nof  apply  to  any  proceeding  or  action  taken  to  levy,  appraise, 
assess,  determine  or  enforce  the  collection  of  any  tax  or  penalty  pre- 
scribed by  this  article. 

[SOURCE:—  Ch.  726,  L.  1917 — no  change.] 

§  219-1.  Personal  property  defined.  The  term  "personal  prop- 
erty," for  the  purpose  of  the  exemption  from  assessment  and  taxation 
thereon  locally  as  granted  by  section  two  hundred  and  nineteen-j  of 
this  chapter,  shall  include  any  movable  machinery  and  equipment  used 
for  trade  or  manufacture  and  not  essential  for  the  support  of  the 
building,  structure  or  superstructure,  and  removable  without  ma- 
terial injury  thereto.  The  term  "personal  property,"  as  used  in  such 
section,  shall  not  include  boilers,  ventilating  apparatus,  elevators, 
plumbing,  heating,  lighting  and  power  generating  apparatus,  shafting 
other  than  counter- shafting,  equipment  for  the  distribution  of  heat, 
light,  power,  gases  and  liquids,  nor  any  equipment  consisting  of  struc- 
tures or  erections  to  the  operation  of  which  machinery  is  not  essen- 
tial. An  owner  of  a  building  is  entitled  to  the  same  exemption  under 
this  section  as  a  lessee. 


152  THE   BUSINESS   CORPORATIONS   TAX    (ART.    9-A) 

[SOUBCE: — Added  by  Ch.  271,  L.  1918,  and  am'd  by  Ch.  628,  L. 
1919. 

The  1919  amendment  struck  out  the  words  in  the  first  paragraph 
of  1918  law  beginning  "affixed  to  the  building"  and  ending  "be  moved 
except'1  and  also  the  injunction  as  to  assessments  of  real  property 
made  subsequent  to  June  4,  1917.] 

Note. — §  15  of  Chapter  628,  L.  1919,  provided  that  "This  Act  shall 
not  affect  any  action  or  proceeding  now  pending." 

2f0te. — The  1919  amendments  take  effect  May  14,  1919,  but  shall  not 
affect  any  action  or  proceeding  pending  on  that  date. 


PART  III 

REMEDIES 

CERTIORARI 

COLLECTION 


AND    VARIOUS   ADMINISTRATIVE    SECTIONS    COMMON    TO   ARTICLES    9, 
9-A  AND  16  OF  THE  TAX  LAW. 


CHAPTER  XX. 
REMEDIES. 

The  administrative  provisions  for  the  revision  and  collection  of 
corporation  franchise  taxes  and  personal  income  taxes,  whether  as- 
sessed by  the  State  Tax  Commission  or  by  the  State  Comptroller  are 
similar  in  character  and  scope  and  are  therefore  treated  together. 
Indeed,  the  State  Comptroller  originally  levied,  as  well  as  col- 
lected, all  the  State  corporation  taxes  and  the  power  was  taken 
away  from  him  by  Chapter  317  of  the  Laws  of  1915,  which  estab- 
lished the  State  Tax  Department  and  defined  its  powers  and  du- 
ties transferring  thereto  certain  powers  of  the  Comptroller.  Thus 
under  the  Laws  of  1919,  the  State  Comptroller,  who  is  now  au- 
thorized to  assess  as  well  as  to  collect  the  personal  income  tax  under 
Article  16,  is  in  a  measure  coming  into  his  own  again. 

Section  198,  Article  9,  Sections  218  and  219-d,  Article  9-a,  re- 
spectively, provide  the  procedure  for  the  revision  of  an  erroneous  or 
illegal  corporation  tax,  and  Section  374,  Article  16,  for  an  er- 
roneous or  illegal  personal  income  tax.  The  various  statutory  pro- 
visions in  each  case  and  the  practice  covering  them  are  substan- 
tially similar. 

Revision  of  corporation  taxes  under  Article  9: — Section  198 
of  the  Tax  Law  providing  for  a  revision  of  an  illegal  or  erroneous 
tax  stated  against  a  corporation  under  Article  9  of  the  Tax  Law,  is 
given  below : 

Revision  and  readjustment  of  accounts  by  tax  commission. — If 

an  application  be  filed  with  the  commission  by  the  party  against  whom 
the  account  is  stated  or  by  the  attorney-general  within  one  year  from 
the  time  any  such  account  shall  have  been  audited  and  stated,  the 
commission  may  at  any  time,  upon  notice  thereof  sent  to  the  person, 
partnership,  company,  association  or  corporation  against  whom  it  is 

155 


156  REMEDIES,    CERTIORARI,    COLLECTIONS 

stated,  revise  and  readjust  such  account,  and  if  it  shall  be  made  to 
appear  upon  any  such  application  by  evidence  submitted  to  it  or  other- 
wise, that  any  such  account  included  taxes  or  other  charges  which 
could  not  have  been  lawfully  demanded,  or  that  payment  has  been 
illegally  made  or  exacted  of  any  such  account,  the  commission  shall 
resettle  the  same  according  to  law  and  the  facts,  and  charge  or  credit, 
as  the  case  may  require,  the  difference,  if  any,  resulting  from  such 
revision  or  resettlement  upon  the  accounts  for  taxes  of  or  against  any 
such  person,  partnership,  company,  association  or  corporation.  Such 
credit,  whether  allowed  before  or  after  the  passage  of  this  chapter, 
may  be,  by  the  person,  partnership,  company,  association  or  corpora- 
tion in  whose  favor  it  is  allowed,  assigned  to  a  person,  partnership, 
company,  association  or  corporation  liable  to  pay  taxes  under  article 
nine  of  this  chapter  and  the  assignee  of  the  whole  or  any  part  of  such 
credit  on  filing  with  the  commission  sucli  assignment  shall  thereupon 
be  entitled  to  credit  on  the  books  of  the  commission  for  the  amount 
thereof  on  the  current  account  for  taxes  of  such  assignee  in  the  same 
way  and  with  the  same  effect  as  though  the  credit  had  originally  been 
allowed  in  favor  of  such  assignee.  The  commission  shall  forthwith 
send  written  notice  of  its  determination  upon  such  application  to  the 
applicant,  and  to  the  attorney-general,  which  notice  may  be  sent  by 
mail  to  its  post-office  address.  (Sec.  198,  former  sec.  195,  Tax  Law, 
as  amended  ~by  ch.  642,  L.  1903,  ch.  734,  L.  1907;  and  ~by  oh.  317,  L. 
1915.) 

Source:  L.  1880,  ch.  542,  sec.  19,  as  added  by  L.  1889,  ch.  463. 

(Recent  Amendments. — The  amendment  of  1915  substituted  the  word 
"commission"  for  "comptroller"  where  it  formerly  occurred.) 

Similar  provisions  under  Articles  g-a  and  16. — Sections  218 
and  219-d,  containing  the  statutory  provisions  for  the  revision 
of  a  tax  under  the  Business  Corporations  Tax  Law  (Article  9-a) 
will  be  found  in  the  last  Chapter  of  Part  II  (supra).  Section  374 
(Article  16)  covers  a  similar  provision  in  the  Personal  Income  Tax 
Law,  and  will  be  found  in  Part  IV  infra. 

Revision  and  readjustment  of  tax. — Under  Section  198,  Ar- 
ticle 9,  or  under  Section  218  of  the  Tax  Law,  which  is  contained 
in  Article  9-a,  a  corporation  dissatisfied  with  the  tax  settled  against 
it  by  the  State  Tax  Commission  may  make  an  application,  "within 
one  year  from  the  time  any  such  account  shall  have  been  audited 
and  stated,"  for  a  correction  and  revision  thereof,  and  it  is  further 


REMEDIES  157 

provided  under  Section  218  that  "the  Commission  shall  grant  a 
hearing  thereon." 

It  will  be  noticed  that  under  this  section,  it  makes  it  mandatory 
upon  the  Commission  to  grant  a  hearing,  whereas  under  Section 
198  of  Article  9,  the  Commission  was  not  obliged  to  comply  with 
the  request.  Written  application  for  revision  must  be  made,  for 
the  section  requires  the  application  to  be  filed. 

The  auditing  and  stating  of  an  account  by  the  Tax  Commission 
refers  to  its  determination  on  the  original  return  filed  by  the 
corporation,  the  entry  of  the  tax,  the  assessment  upon  the  books 
of  the  Tax  Commission  and  notice  thereof  to  the  corporation  as- 


Under  the  practice  in  the  State  of  Pennsylvania,  it  has  been 
held  that  "an  'account'  or  'settlement'  is  a  physical,  tangible  thing, 
a  paper  with  figures  and  writing  upon  it,  signed  by  the  Auditor- 
General  and  State  Treasurer,  indorsed,  copied  into  a  ledger  and 
filed  away  in  its  appropriate  place.  Whether  such  a  settlement 
has  been  made  against  a  given  corporation,  for  a  tax  of  a  given 
year,  is  therefore  a  question  of  fact  to  be  ascertained  by  looking 
in  the  proper  place  for  the  settlement."  Hardenbergh's  Opinions 
and  Decisions  under  Acts  of  Pennsylvania,  p.  31. 

The  settlement  of  taxes  against  corporations  by  the  Auditor- 
General  and  State  Treasurer,  being  a  purely  ministerial  act,  may 
be  made  by  clerks  acting  respectively  under  the  direction  and  by 
the  authority  of  the  Auditor-General  and  State  Treasurer.  See 
Phila.  &  Read.  R.  R.  Co.  v.  Com.,  104  Pa.  86;  Hamilton  Wheel 
Co.  v.  Com.,  12  W.  K  C.  328. 

Revision  of  personal  income  tax. — Under  Section  374,  Arti- 
cle 16,  providing  for  the  revision  of  a  personal  income  tax,  the 
application  must  be  filed  within  one  year  from  the  time  of  the 
filing  of  the  return.  Since  the  personal  income  tax  is  self -assessed 
by  the  taxpayer,  the  filing  of  the  return  marks  the  period  when 
the  time  begins  to  run.  No  notice  is  required  unless  there  be  a 
recomputation,  when  it  would  seem  that  the  comptroller  must  send 
notice  of  the  recomputatiou.  The  granting  of  the  application  for 


158  REMEDIES,   CERTIORARI,    COLLECTIONS 

a  revision  appears  to  be  mandatory  as  is  the  case  of  business  cor- 
poration taxes  under  Article  9-a. 

Form  of  application  for  revision. — The  statute  does  not  set 
forth  any  formal  requirements  to  be  contained  in  an  application 
of  this  character,  but  it  would  seem  that  the  following  may  be 
used  as  a  precedent.  This  form  of  application  may  be  modified 
to  suit  the  law  and  facts  in  cases  arising  under  Articles  9  and  16. 


In  the  Matter 
of 

The  Application  of  the 

Company  for  a  Eevision  and  Eeadjust- 
ment  of  the  Account  Heretofore  Au- 
dited and  Stated  by  the  State  Tax  Com- 
mission of  the  State  of  New  York,  for 
Taxes  under  Article  9-a  of  the  Tax 
Law. 


To  the  Honorable  State  Commission  of  the  State  of  New  York: 

The  application  of  the Company 

respectfully  shows: 

(1).  That  it  is  a  domestic  corporation  duly  organized  and  exist- 
ing under  the  Laws  of  the  State  of  New  York  [or,  if  a  foreign 
corporation,  say:  that  it  is  a  foreign  corporation  organized  and 

existing  under  the  Laws  of  the  State  of and 

transacting  business  in  the  State  of  New  York] . 

(2).  That  for  the  year  beginning  November  1st,  1917,  it  was 
engaged  in  the  business  of  [allege  the  facts']  in  the  State  of  New 
York,  and  in  other  places  outside  of  said  State  as  will  more  par- 
ticularly be  referred  to  hereafter :  that  part  of  its  capital,  including 
tangible  property  is  employed  in  the  State  of  New  York,  but  that 
the  greater  part  of  its  tangible  property  consisting  of  [state  nature 
thereof]  is  employed  outside  of  said  State  as  will  more  particularly 
be  referred  to  hereafter. 

(3).  That  on  or  about  the day  of ,  1917,  it 

made  a  written  report  to  the  State  Tax  Department,  as  required 


REMEDIES  159 

by  Article  9 -a  of  the  Tax  Law,  such  report  being  in  the  form 
prescribed  by  said  department :  that  a  copy  of  said  report  is  hereto 
annexed,  made  a  part  hereof,  and  marked  Exhibit  A. 

(4).  That  thereafter  the  State  Tax  Commission  audited  and 
stated  the  account  for  taxes  to  be  paid  by  your  petitioner  for  the 
year  beginning  November  1st,  1917,  and  sent  notice  thereof  to  it. 

(5).  That  the  said  account  so  audited  and  stated  imposed  a 
tax  of  $ upon  said  corporation. 

(6).  That  said  account  was  erroneous  and  illegal  in  that  [here 
set  forth  in  detail  the  facts  upon  which  it  is  claimed  that  the  ac- 
count was  erroneous  or  illegal]. 

(7).  That  in  consequence  of  the  fact  that  said  tax  was  erroneous 
and  illegal,  it  cannot  be  lawfully  demanded,  and  the  said  tax  is 
wholly  without  warrant  or  authority  either  in  fact  or  law. 

WHEREFORE,  the  said  company  makes  application  for  a  revision 
and  readjustment  of  such  account,  so  audited  and  stated,  so  that 
your  petitioner  shall  be  given  credit  for  [here  state  credit  claimed] . 
That  upon  such  hearing  your  petitioner  will  present  evidence  to 
corroborate  such  facts  as  will  support  its  claim  for  such  credit,  to 
wit:  [here  set  forth  facts  to  be  adduced],  and  your  petitioner 
prays  that  the  Tax  Commission  shall  resettle  such  tax  according 
to  the  law  and  the  facts,  and  adjust  the  account  of  the  taxes  ac- 
cordingly, and  that  it  shall  thereafter  send  notice  of  its  determina- 
tion to  the  State  Comptroller;  and  the  said  company  prays  for 
such  other  and  further  relief  as  may  be  proper. 

Company. 

By 

President    (or  other  officer). 


Attorney. 
Office  and  P.  0.  Address 

(Verification  in  usual  form.) 

Verification. — The  failure  to  verify  a  petition  for  resettlement 
is  no  ground  for  assuming  that  facts  therein  stated  are  insufficient 
on  certiorari.  When  the  comptroller  has  granted  an  application 


160  REMEDIES,    CERTIORARI,    COLLECTIONS 

for  a  resettlement  of  a  tax  on  a  petition  properly  signed,  but  not 
verified,  the  court,  on  certiorari,  cannot  assume  that  in  this  respect 
there  was  not  sufficient  proof  before  the  comptroller.  People  v. 
Campbell  &  Roberts,  88  Hun,  544. 

Revision  and  resettlement  of  tax. — Upon  the  revision  or  reset- 
tlement of  an  account,  the  commission  shall,  under  Section  218, 
Article  9-a,  resettle  the  same  according  to  law  and  the  facts,  and 
adjust  the  account  for  taxes  accordingly.  Under  Article  9,  Section 
198,  "the  Commission  shall  resettle  the  same  according  to  law  and 
the  facts,  and  charge  or  credit,  as  the  case  may  require,  the  differ- 
ence, if  any,  resulting  from  such  revision  or  resettlement." 

It  is  reasonable  to  assume  that  the  Commission  has  the  same 
power  to  credit  a  business  corporation's  account  with  taxes  or 
other  charges  unlawfully  or  erroneously  demanded,  or  with  an 
illegal  payment,  under  Section  218,  that  it  has  under  Article 
9  with  respect  to  the  corporations  affected  thereby. 

Credit  for  excess  taxes;  refund. — Before  the  enactment  of 
Article  9-a,  corporations  could  assign  the  difference  resulting  from 
a  revision  or  resettlement  of  a  franchise  tax  under  Article  9  (Sec- 
tion 198,  Tax  Law).  There  is  no  similar  provision  in  Article 
9-a,  but  under  Section  219-d  thereof,  business  corporations  are 
permitted  to  assign  an  excess  of  tax  to  a  corporation  liable  to  pay 
taxes,  after  the  amount  of  annual  net  income  of  the  assignor  cor- 
poration has  been  corrected  by  the  Commissioner  of  Internal 
Revenue.  There  is  therefore  some  ground  for  believing  that  the 
right  to  assign  a  credit  for  excess  taxes  under  Article  9-a  would 
be  recognized.  Some  warrant  may  be  found  for  this  opinion  in 
the  general  powers  of  the  Commission  under  Section  218  to  "ad- 
just the  account."  Article  9-a,  section  219-j,  now  provides  for  a 
refund  of  excess  taxes  paid. 

Refund  under  Article  16  (Section  377). — Articles  9  and  9-a 
provide  for  an  assignment  and  credit  of  excess  taxes  paid.  There 
is  no  provision  in  Article  9  for  a  refund,  and  there  was  none  in  9-a 
until  Chapter  138  of  the  Laws  of  1919  added  a  paragraph  to  Sec- 
tion 219-j,  under  which  the  Comptroller  may  refund  to  a  cor- 


REMEDIES  161 

poration  out  of  the  current  revenues  in  his  hands,  the  amount  of 
excess  taxes  paid  without  interest. 

Under  the  fourth  paragraph  of  Section  377,  the  following  provi- 
sion is  made  for  a  refund  under  the  Personal  Income  Tax  Law 
(Article  16)  : 

"4.  If  the  amount  of  tax  as  computed  shall  be  less  than  the  amount 
theretofore  paid,  the  excess  shall  be  refunded  by  the  comptroller  out 
of  the  proceeds  of  the  tax  retained  by  him  as  provided  in  this  article. 

General  rules  applying  to  rehearing. — It  is  for  the  corpora- 
tion on  application  for  a  hearing  to  establish  the  fact  that  the 
conclusion  of  the  Commission  was  erroneous.  People  ex  rel.  Am. 
Axe  &  Tool  Co.  v.  Roberts,  82  Hun,  313. 

On  application  for  a  revision,  if  a  corporation  fails  to  show 
ground  for  a  readjustment,  the  Commission  cannot  increase  the 
amount  of  the  tax  as  originally  fixed.  Under  Section  198  Tax 
Law,  as  amended  by  Laws  of  1915,  Chapter  317,  the  Commission, 
on  a  readjustment  or  revision  charged  or  credited  the  taxpayer  with 
the  difference.  Section  218  of  Article  9-a  provides  that  the 
Commission  shall  adjust  the  account,  and  the  words  "charge  or 
credit"  do  not  appear.  Probably  the  difference  in  language  be- 
tween the  1915  Law  and  the  present  one  was  the  result  of  the 
ambiguity  created  by  the  use  of  the  terms  "charge  or  credit,"  which 
words  evidently  referred  to  the  state  of  the  account  between  the 
State  and  the  taxpayer.  A  tax,  if  illegal  and  already  paid,  is  to  be 
credited;  if  the  tax  is  unpaid  and  diminished,  it  is  to  be  charged. 
People  ex  rel.  Eppens  Co.  v.  Roberts,  51  App.  Div.  152. 

Application  may  be  properly  made  for  revision  of  a  tax  im- 
posed upon  and  paid  by  a  corporation  exempted  from  any  taxa- 
tion under  the  act,  even  if  the  tax  was  voluntarily  paid.  People 
ex  rel.  Edison  Elec.  III.  Co.  v.  Wemple,  141  N.  Y.  471. 

On  application  for  a  revision  of  the  tax  under  Section  218,  it 
would  appear  that  the  petitioner  is  not  obliged  to  present  furtbpr 
testimony  or  offer  witnesses  for  examination.  The  corporation  may 
rely  on  the  accounts  already  presented.  People  ex  rel.  Stude- 
laker  Co.  v.  Knight,  66  App.  Div.  150. 


162  REMEDIES,   CERTIORARI,    COLLECTIONS 

When  comptroller's  determination  binding. — The  determina- 
tion of  an  assessing  officer  that  a  corporation  is  exempt  as  a  manu- 
facturing corporation  is  not  binding  on  his  successor  upon  applica- 
tion to  secure  an  exemption  from  taxation  for  a  subsequent  year. 
People  ex  rel.  N.  Eng.  Dressed  Meat  &  Wool  Co.  v.  Roberts,  155' 
N".  Y.  408  (1898).  But  the  comptroller  cannot,  of  his  own  mo- 
tion, change  the  amount  of  a  license  fee  fixed  by  him  or  his  prede- 
cessor. The  same  is  in  the  nature  of  a  judicial  decision.  People 
ex  rel.  Spenceriun  Pen  Co.  v.  Kelsey,  105  App.  Div.  133  (1905). 


CHAPTER  XXI. 

POWERS  OF  TAX  COMMISSION  AND  COMPTROLLER;   PENALTIES; 
COLLECTION  OF  TAXES;  SECRECY;  LIMITATIONS. 

Section  217  of  Article  9-a  provides,  that  if  the  corporation  fails 
or  neglects  to  make  a  report  under  the  Law,  the  Tax  Commission 
may  estimate  the  net  income  of  such  corporation  and  compute  the 
amount  of  tax  due,  and  may  audit  and  state  the  account  according 
to  such  estimate.  It  must  notify  the  corporation  by  mail,  of  such 
estimate  made,  and  give  it  an  opportunity  to  be  heard  with  respect 
thereto.  All  the  authority  and  powers  conferred  under  Section 
195  of  the  Tax  Law,  upon  the  State  Tax  Commission,  shall  have 
full  force  and  effect  in  respect  to  corporations  liable  under  this 
section. 

Section  195  of  the  Tax  Law  reads  as  follows: 

"Powers  of  Tax  Commission  to  examine  into  affairs  of  corporations. 
In  case  any  report  required  by  any  of  the  preceding  sections  of  this 
article  shall  be  unsatisfactory  to  the  commission,  or  if  any  such  report 
is  not  made  as  herein  required,  the  commission  is  authorized  to  make 
an  estimate  of  the  dividends  paid  by  such  corporation  and  the  value 
of  the  capital  stock  employed  by  it,  from  any  such  report  or  from  any 
other  data,  and  to  order  and  state  an  account  according  to  the  esti- 
mate and  value  so  made  by  it  for  the  taxes,  percentage  and  interest 
due  the  State  from  such  corporation,  association,  joint-stock  company, 
person  or  partnership.  The  commission  shall  also  have  power  to 
examine  or  cause  to  be  examined,  in  case  of  a  failure  to  report  or,  in 
case  the  report  is  unsatisfactory  to  it,  the  books  and  records  of  any 
corporation,  joint-stock  association,  company,  foreign  banker,  person 
or  partnership,  and  may  hear  testimony  and  take  proofs  material  for 
its  information,  and  may  appoint  a  commissioner  by  a  written  ap- 
pointment under  its  official  seal  for  that  purpose.  Every  commis- 
sioner so  appointed  shall  be  authorized  to  make  such  examination  and 
take  such  testimony  and  hear  such  proofs  and  report  the  proofs  and 

163 


164  REMEDIES,   CERTIORARI,   COLLECTIONS 

testimony  so  taken  and  the  result  of  his  examination  so  made  and  the 
facts  found  by  him  to  the  commission.  The  commission  shall,  there- 
from, or  from  any  other  data  which  shall  be  satisfactory  to  it,  order 
and  state  an  account  for  the  tax  due  the  State,  together  with  the 
expenses  of  such  examination  and  the  taking  of  such  testimony  and 
proofs.  Such  expenses  shall  be  fixed  and  adjusted  by  the  commission." 

General  powers  of  tax  commission. — In  addition  to  the  pow- 
ers conferred  on  the  Tax  Commission  by  Section  195,  its  general 
powers  and  duties  are  denned  by  Sections  171  and  171-a. 

Section  171  of  the  Tax  Law  defines  the  powers  of  the  Tax  Com- 
mission, and  among  them  are  the  following: 

**##*** 

Third.  Make  such  reasonable  rules  and  regulations,  not  inconsistent 
with  law,  as  may  be  necessary  for  the  exercise  of  its  powers  and  the 
performance  of  its  duties  under  this  chapter,  and  prescribe  the  form 
of  blanks,  reports,  assessment  rolls,  and  other  records  relating  to  the 
assessment  of  property  for  taxation,  and  furnish  such  forms  to  assess- 
ors and  other  officers  at  the  expense  of  the  State.  Local  assessors 
shall  follow  the  forms  so  prescribed,  and  the  commission  shall  enforce 
their  use. 

Fourth.  On  and  after  April  fifteenth,  nineteen  hundred  and  fifteen, 
assess,  determine,  revise,  readjust  and  impose  the  corporation  taxes 

under  article  nine  of  this  chapter. 

**#*#*# 

Seventh.  Take  testimony  and  proofs,  under  oath,  with  reference  to 
any  matter  within  the  line  of  its  official  duty.  Any  member  of  such 
commission  may  be  designated  for  that  purpose. 

Eighth.  Require  from  all  State  and  local  officers  such  information 
as  may  be  necessary  for  the  proper  discharge  of  its  duties. 

The  power  to  compel  testimony  is  given  under  the  following 
section : 

Section  171-3.  Administer  oaths  and  compel  testimony: — The 
members  of  the  tax  commission,  their  deputies,  secretary  or  other  offi- 
cer or  employee  duly  designated  and  authorized  by  the  commission  for 
that  purpose  shall  have  power  to  administer -oaths  and  take  affidavits 
in  relation  to  any  matter  or  proceeding  in  the  exercise  of  the  powers 
or  duties  of  the  commission  under  this  article.  The  commission  shall 
have  power  to  subpoena  and  require  the  attendance  of  witnesses  and 
the  production  of  books,  papers  and  documents  pertinent  to  the  inves- 
tigations and  inquiries  which  it  is  authorized  to  conduct,  and  to  exam- 


POWERS   OF   COMMISSION   AND   COMPTROLLER  165 

ine  them  in  relation  to  any  matter  which  it  has  power  to  investigate 
and  to  issue  commissions  for  the  examination  of  witnesses  who  are 
out  of  the  State  or  unable  to  attend  before  the  tax  commission  or 
excused  from  attendance. 

A  justice  of  the  supreme  court  either  in  court  or  at  chambers  shall 
have  power  summarily  to  enforce  by  proper  proceedings  the  attendance 
and  testimony  of  witnesses  and  the  production  and  examination  of 
books,  papers  and  documents  called  for  by  the  commission's  subpoenas. 

Any  person  who  shall  testify  falsely  in  any  material  matter  pending 
before  the  commission  shall  be  guilty  of  and  punishable  for  perjury. 

The  officers  who  serve  the  commission's  summons  or  subpoenas  and 
witnesses  attending  in  response  thereto,  shall  be  entitled  to  the  same 
fees  as  are  all'owed  to  officers  and  witnesses  in  civil  cases  in  courts  of 
record. 

Commission  cannot  punish  for  contempt. — Under  Section 
171a,  it  is  to  be  noted  that  while  the  Commission  has  power  to  sub- 
poena and  require  the  attendance  of  witnesses  and  the  production 
of  books,  papers  and  documents,,  it  has  no  power  to  punish  for  con- 
tempt. The  obedience  to  the  Commission's  mandate,  however,  is 
obtained  by  recourse  to  the  Supreme  Court,  a  justice  of  which  is 
by  this  section  expressly  authorized  to  enforce  the  Commission's 
mandate.  A  person  who  testifies  falsely  before  the  Commission  is 
guilty  of  perjury. 

Powers  similar  to  those  given  to  the  Tax  Commission  under  Sec- 
tion 217,  and  the  power  to  examine  the  taxpayer's  books  and  take 
testimony  are  given  to  the  State  Comptroller  under  Section  373 
(Part  IV,  infra)  of  Article  16. 

To  enforce  the  powers  of  the  Commission,  the  statute  provides 
for  the  imposition  of  penalties  for  failure  to  file  reports. 

Penalty  for  failure  to  report. — Section  216  of  the  Tax  Law 

reads  as  follows: 

"Any  corporation  which  fails  to  make  any  report  required  by  this 
article  shall  be  liable  to  a  penalty  of  not  more  than  five  thousand 
dollars  to  be  paid  to  the  State,  to  be  collected  in  a  civil  action,  at  the 
instance  of  the  tax  commission;  and  any  officer  of  any  such  corpora- 
tion who  makes  a  fraudulent  return  or  statement  with  intent  to  defeat 
or  evade  the  payment  of  the  taxes  prescribed  by  this  article  shall  be 
liable  to  a  penalty  of  not  more  than  one  thousand  dollars,  to  be  col- 


166  REMEDIES,    CERTIORARI,   COLLECTIONS 

lected  in  like  manner.  All  moneys  recovered  as  penalties,  for  a  failure 
to  report  or  for  making  fraudulent  reports,  shall  be  paid  to  the  state 
comptroller." 

It  is  to  be  noted  that  the  amount  of  the  penalty  under  this  sec- 
tion is  to  be  determined  by  the  Supreme  Court;  the  only  limitation 
is  that  the  penalty  imposed  shall  in  no  event  be  more  than  five 
thousand  dollars.  The  statute  is  silent  as  to  the  name  of  the  officer 
of  the  state  by  whom  the  action  is  to  be  instituted.  It  is  clear, 
however,  that  it  should  be  brought  by  the  attorney-general  under 
his  broad  powers,  in  the  same  manner  as  he  is  authorized  to  insti- 
tute proceedings  for  the  recovery  of  the  tax  under  Section  219-f, 
at  the  instance  of  the  comptroller.  There  is  a  wide  departure  in 
the  method  of  prescribing  the  penalty  for  a  delinquent  corporation 
under  Article  9,  as  prescribed  in  Section  197  and  for  such  a  cor- 
poration under  Section  217.  Under  the  former,  a  definite  schedule 
of  penalties,  based  upon  the  tax  payable,  in  addition  to  a  certain 
determined  and  determinate  additional  penalty  is  prescribed  for 
corporations  subject  to  Article  9,  while  Section  217  prescribes 
that  a  delinquent  business  corporation  must  pay  a  penalty  to  be 
fixed  in  a  civil  action  in  an  amount  to  be  not  more  than  five  thou- 
sand dollars. 

Action  for  recovery  of  taxes;  forfeiture  of  charter  of  delin- 
quent corporations. — Under  the  provisions  of  Article  9-a  actions 
can  be  instituted  for  the  recovery  of  taxes  against  delinquent  cor- 
porations by  the  attorney-general,  who  also  has  the  power  conferred 
upon  him,  in  a  proper  case,  to  institute  proceedings  for  the  for- 
feiture of  the  franchise  of  any  such  corporation.  Section  219-f  of 
Article  9-a  is  quite  similar  to  Section  203  which  gives  the  attorney- 
general  similar  powers  over  such  delinquent  corporations  as  are 
still  affected  by  such  article.  It  reads  as  follows: 

"Action  may  be  brought  at  any  time  by  the  attorney-general  at  the 
instance  of  the  comptroller,  in  the  name  of  the  state,  to  recover  the 
amount  of  any  taxes,  penalties  and  interest  due  under  this  article, 
if  such  taxes  be  not  paid  within  one  year  after  the  same  be  due,  and 
the  comptroller  is  satisfied  that  the  failure  to  pay  the  same  is  inten- 
tional he  shall  so  report  to  the  attorney -general,  who  shall  immedi- 


POWERS   OF   COMMISSION   AND   COMPTROLLER  167 

ately  bring  an  action  in  the  name  of  the  people  of  the  state,  for  the 
forfeiture  of  the  charter  or  franchise  of  any  corporation  failing  to 
make  such  payment,  and  if  it  be  found  that  such  failure  was  inten- 
tional, judgment  shall  be  rendered  in  each  action  for  the  forfeiture 
of  such  charter  and  for  its  dissolution  if  a  domestic  corporation  and 
if  a  foreign  corporation  for  the  annulment  of  its  franchise  to  do  busi- 
ness in  this  state." 

(The  above  provision  follows  Section  203,  Article  9,  in  all  substan- 
tial respects.) 

The  penalties  referred  to  in  the  above  section  are  the  penalties 
provided  for  in  Section  219-c,  as  amended  in  1918,  and  not  the 
penalty  referred  to  in  Section  216  for  the  failure  of  the  corpora- 
tion to  make  its  report,  which  latter  penalty  is  enforceable  at  the 
instance  of  the  Tax  Commission  and  not  at  the  instance  of  the 
comptroller. 

Interest  uncollectible  as  part  of  penalty. — The  statute  pre- 
scribing the  penalty  (Section  219-c)  does  not  provide  for  the  pay- 
ment of  interest  on  the  tax.  It  follows  that  the  interest  is  no  part 
of  the  penalty,  and  cannot  be  collected.  People  v.  Gold  &  Stock 
Tel.  Co.,  98  N.  Y.  67. 

Warrant  for  the  collection  of  taxes. — Generally  before  pro- 
ceeding to  collect  the  tax  by  action  (although  the  statute  does  not 
make  it  an  absolute  prerequisite)  the  comptroller  resorts  to  the 
summary  method  of  issuing  a  warrant  to  the  sheriff  of  any  county, 
in  conformity  with  Section  219-e,  commanding  him  to  levy  upon 
and  sell  the  real  and  personal  property  of  the  corporation  within 
his  county,  for  the  payment  of  the  tax  with  penalties,  interest  and 
cost  of  executing  the  warrant,  and  to  return  such  warrant  to  the 
comptroller,  and  to  pay  to  him  the  money  collected  by  virtue  thereof 
by  the  time  therein  specified,  which  is  not  less  than  sixty  days  from 
the  date  of  the  warrant.  The  warrant  is  a  lien  on  and  binds  all  of 
the  corporation's  property  from  the  time  the  actual  levy  is  made. 
The  sheriff  to  whom  the  warrant  is  directed,  proceeds  upon  the 
same  in  all  respects  as  prescribed  by  law  in  regard  to  executions 
issued  against  property  upon  judgments  of  a  court  of  record;  he  is 


168  REMEDIES,   CERTIORARI,    COLLECTIONS 

entitled  to  the  same  fees  for  his  services  in  executing  the  warrant, 
to  be  collected  in  the  same  manner. 

(Note:  See  footnote  to  Section  219-e,  chap.  XIX,  supra.) 

Warrant  for  unpaid  personal  income  tax. — Substantially  the 
same  provision  exists  for  the  issuance  of  a  warrant  by  the  comp- 
troller under  Section  380  of  the  Tax  Law,  upon  the  return  of  an 
unpaid  personal  income  tax  which  may  be  in  arrears  for  sixty  (in- 
stead of  thirty)  days  with  this  additional  feature,  that 

"The  sheriff  shall  within  five  days  after  the  receipt  of  the  warrant, 
file  with  the  clerk  of  his  county  a  copy  thereof,  and  thereupon  the 
clerk  shall  enter  in  the  judgment  docket,  in  the  column  for  judgment 
debtors,  the  name  of  the  taxpayer  mentioned  in  the  warrant,  and  in 
appropriate  columns  the  amount  of  the  tax  or  portion  thereof  and 
penalties  for  which  the  warrant  is  issued  and  the  date  when  such  copy 
is  filed,  and  thereupon  the  amount  of  such  warrant  so  docketed  shall 
become  a  lien  upon  the  title  to  and  interest  in  real  property  or  chat- 
tels real  of  the  person  against  whom  it  is  issued  in  the  same  manner 
as  a  judgment  duly  docketed  in  the  office  of  such  clerk." 

There  is  also  an  added  provision  that  in  the  comptroller's  dis- 
cretion a  warrant  may  issue  to  an  agent  not  a  sheriff,  who  will  be 
entitled  to  actual  expenses  but  no  fees ;  and  there  is  a  further  pro- 
vision that  if  the  warrant  is  returned  unsatisfied,  the  comptroller 
may  have  the  same  remedies  to  enforce  the  claim  for  taxes  against 
the  taxpayer  as  if  the  people  of  the  State  had  recovered  judgment 
against  the  taxpayer  for  the  amount  of  the  tax. 

Is  there  a  personal  liability  for  a  personal  income  tax  against 
a  non-resident? — In  addition  to  the  method  above  described  for 
collecting  a  personal  income  tax  by  a  sheriff's  levy  on  the  real  and 
personal  property  of  the  delinquent,  there  is  the  further  provision 
in  the  Personal  Income  Tax  Act: 

"Section  381.  Action  for  the  Recovery  of  Taxes.  Action  may  be 
brought  at  any  time  by  the  attorney-general  of  the  state  at  the  in- 
stance of  the  comptroller,  in  the  name  of  the  state,  to  recover  the 
amount  of  any  taxes,  penalties  and  interest  due  under  this  article." 

Whatever  remedies  the  state  is  entitled  to  pursuant  to  collect  a 
tax  against  a  resident,  it  is  doubtful  if  a  personal  liability  may  be 


POWERS   OF   COMMISSION   AND  COMPTROLLER  169 

imposed  upon  a  non-resident's  property  not  employed  in  business 
in  the  state,  or  having  a  permanent  situs  here.  While  a  sheriff  or 
marshal  may  make  a  levy  on  "capital  invested"  by  a  non-resident 
in  the  state,  it  was  intimated  in  Foster  Pump  Works  v.  the  Mayor, 
100  App.  Div.  515,  affirmed  on  opinion  below,  that  distress  and  sale 
would  not  lie  against  a  non-resident' s  general  property  in  the  state. 

As  far  as  a  non-resident  is  concerned,  Chapter  627  of  the  Laws  of 
1919,  does  not  impose  a  tax  upon  him  individually,  i.  e.,  it  does  not 
attempt  to  tax  him  personally  nor  does  it  pretend  to  tax  him  on 
his  business.  In  the  case  of  non-residents  employed  here,  the  state 
has  provided  for  withholding  the  tax  at  the  source  and  it  may  be 
inferred  that  as  to  non-residents  having  property  or  capital  em- 
ployed here,  it  was  intended  to  enforce  the  tax  against  the  property 
or  capital  employed  in  the  state. 

In  the  City  of  New  York  v.  McLean,  170  K  Y.  374,  the  court 
said  at  page  383 : 

"Legislative  power  ceases  at  the  line  of  the  state  and  judicial  power 
must  also  cease  at  that  point.  Jurisdiction  relates  to  subject-matter, 
to  person  and  to  property.  Hence  the  rightful  exercise  of  it  must  be 
founded  upon  the  person  being  within  the  state  if  a  personal  deter- 
mination is  involved,  or  the  property  must  be  within  its  territory  if 
that  is  the  subject  of  the  controversy  (Brown  on  Jurisdiction,  Sec- 
tions 2  and  5). 

The  attempt  to  give  a  tax  the  force  of  a  judgment  against  the 
general  property  of  a  non-resident  in  this  state  was  overruled  in 
Matter  of  Maltbie  v.  Lolsitz  Mills,  223  N.  Y.  230,  and  Matter  of 
MaltUe  v.  N.  Y.  &  Philadelphia  Coal  &  Coke  Co.  223  K  Y.,  633. 

Limitation  of  time. — Section  219-k  of  the  act  expressly  removes 
from  the  code  provisions  relative  to  the  limitation  of  time  of  en- 
forcing a  civil  remedy,  any  proceeding  or  action  taken  to  levy,  ap- 
praise, assess,  determine  or  enforce  the  collection  of  any  tax  or 
penalty  prescribed  in  Article  9-a.  This  provision  is  similar  in 
substance  and  language  to  that  contained  under  Article  9  of  the 
Tax  Law  in  relation  to  the  franchise  tax  on  corporations  affected 
thereby. 


170  REMEDIES,   CERTIORARI,   COLLECTIONS 

No  limitation  for  action  under  personal  income  tax  law. — 

Section  381  of  the  Tax  Law  to  which  reference  has  already  been 
made,  fixes  no  limitation  within  which  an  action  may  be  brought 
to  enforce  the  collection  of  a  personal  income  tax. 

Secrecy  required  of  officials ;  Penalty  for  violation. — Section 
219-i  provides  that  it  is  unlawful  for  any  tax  commissioner  or  any 
of  his  agents  or  employees  to  make  known  in  any  manner  the 
amount  of  income  or  any  particulars  set  forth  in  the  reports  re- 
quired under  this  article.  This  does  not  prohibit  the  publication 
of  statistics,  when  so  classified  as  to  prevent  the  identification  of 
particular  reports,  nor  does  it  prohibit  the  publication  of  delin- 
quent lists,  showing  the  names  of  taxpayers  who  have  failed  to  pay 
their  taxes,  together  with  any  relevant  information  which  in  the 
comptroller's  opinion  may  assist  in  the  collection  of  such  delinquent 
taxes,  or  the  inspection  by  the  attorney-general  or  other  legal  repre- 
sentative of  the  State  of  the  corporation's  report,  under  the  cir- 
cumstances set  forth  in  said  section.  The  reports  are  to  be  pre- 
served for  at  least  three  years  and  thereafter  until  the  Commission 
orders  their  destruction ;  any  offender  against  the  provisions  of  this 
section  shall  be  subject  to  fine  or  imprisonment  or  both,  and  if  he 
be  an  officer  or  employee  of  the  State,  he  shall  be  dismissed  from 
office  and  be  incapable  of  holding  any  public  office  in  this  State 
for  a  period  of  five  years  thereafter. 

The  provisions  contained  in  Section  219-i,  as  to  secrecy  and  for 
the  punishment  of  an  offense  against  such  provisions,  are  in  sub- 
stance the  same  as  those  contained  in  paragraphs  232,  233,  234 
and  235  of  the  Federal  Income  Tax  Law,  Act  of  September  8th, 
1916,  as  amended  by  the  Act  of  October  3d,  1917. 

Eeference  in  paragraph  1  of  Section  219-i,  as  to  the  publication 
of  statistics,  refers  to  the  usual  powers  given  to  the  Tax  Commis- 
sion under  Section  171  of  the  Tax  Law.  The  reference  to  publica- 
tion of  the  delinquent  lists  as  an  aid  to  the  collection  of  the  taxes, 
is  taken  from  the  Wisconsin  Income  Law.  Under  the  Wisconsin 
Income  Tax  Law,  the  assessment  and  the  tax  rolls,  and  all  pro- 
ceedings and  evidences  taken  before  the  County  Board  of  Eeview, 
shall  be  open  to  public  inspection  under  such  conditions  as  the  Tax 
Commission  may  permit. 


CHAPTER  XXII. 
CERTIORARI. 

The  general  purpose  of  a  writ  of  certiorari  is  to  correct  errors 
of  a  judicial  or  gmsi-judicial  character.  The  determination  of  the 
State  Tax  Commission,  or  of  the  Comptroller,  may  be  placed  in  the 
latter  category.  Under  our  system  of  State  and  local  taxation,  the 
corporation  or  person  aggrieved  is  no  longer  confined  to  the  com- 
mon law  remedy  of  certiorari,  which  was  somewhat  limited  in  its 
scope,  but  special  statutory  provisions  now  regulate  this  proceeding. 

Ever  since  Chapter  542  of  the  Laws  of  1880,  and  coincident  with 
the  introduction  of  our  system  of  State  taxation  of  business  cor- 
porations, there  have  been  provisions  in  the  statute  for  reviewing 
the  determination  of  the  State  Comptroller,  and  later  on,  of  his 
successor,  the  State  Tax  Commission,  as  to  any  determination 
affecting  corporations  taxable  under  Article  9.  These  provisions 
have  now  been  repeated  either  by  reference  to  existing  statutes  or 
by  additional  sections  in  Article  9-a  and  again  in  Article  16.  The 
practice  under  these  provisions  has  been  passed  on  by  the  courts  in 
a  long  line  of  cases,  which  are  referred  to  below  with  the  idea  of 
their  application  to  the  new  law. 

The  provisions  governing  certiorari  proceedings  for  business  cor- 
porations generally,  before  the  passage  of  the  so-called  State  In- 
come Tax  Laws  (Articles  9  and  16),  are  contained  in  Sections  199 
and  200  of  the  Tax  Law  under  Article  9.  Section  219  of  Article 
9-a  and  Section  375  of  Article  16  are  repetitions  of  Section  200, 
and  provide  for  a  certiorari  to  review  the  determination  of  the 
State  Tax  Commission  or  the  State  Comptroller  respectively  as  to 
a  tax  imposed  under  Article  9-a  or  Article  16.  The  require- 
ments are  almost  identical  in  this  respect  with  Section  200,  in  that 
notice  of  the  application  must  be  made  within  thirty  days  after 

171 


172  REMEDIES,    CERTIORARI,    COLLECTIONS 

service  of  notice  of  the  determination,  and  a  further  similar  re- 
quirement is  contained  as  in  Section  200,,  that  eight  days'  notice 
shall  be  given  to  the  Commission  or  the  "Comptroller  (as  the  case 
may  be),  of  the  application  for  such  writ.  So  also  must  the  full 
amount  of  taxes,  percentage,  interest  and  other  charges,  audited 
and  stated  in  said  account,  be  deposited  with  the  State  Comptroller 
before  making  the  application,  and  an  undertaking  filed  with  the 
Commission  or  the  Comptroller  (as  the  case  may  be)  in  such 
amount,  and  with  such  sureties  as  a  justice  of  the  Supreme  Court 
shall  approve.  The  forms  of  petition.,  the  writ  and  the  undertaking 
are  given  in  another  portion  of  this  book.  Section  219  further 
provides  that  the  determination  may  be  reviewed  in  the  manner 
prescribed  by  and  subject  to  the  provisions  of  Section  199  of  this 
chapter,  to  which  reference  has  already  been  made. 

Certiorari  under  Corporation  Tax  (Article  9). — Section  199 
of  the  Tax  Law  reads  as  follows : 

"Review  of  determination  of  tax  commission  by  certiorari. — 

The  determination  of  the  commission,  upon  any  application  made  to 
it  by  any  person,  partnership,  company,  association  or  corporation 
for  a  revision  and  resettlement  of  any  account,  as  prescribed  in  this 
article,  may  be  reviewed  both  upon  the  law  and  the  facts  upon  cer- 
tiorari by  the  supreme  court  at  the  instance  of  any  person,  partner- 
ship, company,  association  or  corporation  affected  thereby,  and  in  the 
name  and  on  behalf  of  the  people  of  the  state.  For  the  purpose  of 
such  review,  the  commission  shall  return,  on  such  certiorari,  the 
accounts  and  all  the  evidence  before  it  on  such  application,  and  all 
the  papers  and  proofs  upon  the  original  statement  of  such  account 
and  all  proceedings  thereon.  If  the  original  or  resettled  accounts  shall 
be  found  erroneous,  or  illegal,  either  in  point  of  law  or  of  fact,  by 
the  supreme  court,  upon  any  such  review,  the  accounts  reviewed  shall 
then  be  corrected  and  restated,  and  from  any  determination  of  the 
supreme  court  upon  any  such  review  an  appeal  to  the  court  of  appeals 
may  be  taken  by  either  party." 

[The  text  of  the  law  in  certiorari  for  Arts.  9-a  and  16  is  given  in 
Part  II  and  Part  IV.] 

Taxes  to  be  deposited  with  State  comptroller. — Under  the 
1918  amendment,  Section  200  of  the  Tax  Law  (as  amended  by  L. 


CERTIORARI  173 

1915,  ch.  317),  which  was  entitled  "regulations  as  to  such  writ  of 
certiorari,"  has  been  incorporated  in  the  second  paragraph  of  Sec- 
tion 219,  above  quoted,  and  differs  from  Section  200  only  in  that 
under  that  section  the  full  amount  of  the  taxes,  percentages  and 
charges  credited  were  to  be  deposited  with  the  State  treasurer, 
whereas  under  Article  9-a,  they  are  to  be  deposited  with  the  State 
comptroller. 

Code  provisions  applicable. — The  right  to  the  writ  being  ex- 
pressly conferred  by  statute  (Section  199,  Tax  Law)  its  issuance 
is  provided  by  Section  2120  of  the  Code.  It  can  only  be  issued 
out  of  the  Supreme  Court  (Code,  Section  2123).  The  application 
for  the  writ  must  be  made  by,  or  in  behalf  of,  the  corporation 
aggrieved  by  the  determination  to  be  reviewed ;  it  must  be  founded 
upon  an  affidavit,  or  a  verified  petition,  which  must  be  accompanied 
by  other  written  proof;  and  must  show  a  proper  case  for  the  issu- 
ance thereof.  It  can  be  granted  only  at  a  term  of  the  Appellate 
Division  of  the  Supreme  Court  or  at  Special  Term  (Code,  Section 
2127).  If  granted  at  Special  Term,  it  is  invariably  granted  in  the 
case  of  a  corporation  in  the  judicial  district  where  its  principal 
office  is  located.  In  the  case  of  an  individual  (resident),  in  the 
district  where  he  resides,  and  in  the  case  of  a  non-resident  at  his 
place  of  business  or  occupation  in  the  State,  eight  days'  notice  of 
the  application  for  the  writ  must  be  given  by  Section  199  of  the 
Tax  Law,  as  now  amended,  and  copies  of  the  papers  upon  which 
the  application  is  to  be  made,  served  therewith.  (Code,  Section 
2128).  The  writ  must  be  directed  to  the  members  of  the  tax  com- 
mission whose  determination  is  sought  to  be  reviewed,  by  their 
names  (Code,  Section  2129)  or  to  the  comptroller,  in  person  (if 
under  Article  16).  It  must  be  served,  except  where  different  direc- 
tions respecting  the  mode  of  service  thereof,  are  given  by  the  court 
granting  it,  upon  the  chairman  of  the  Tax  Commission.  (Code, 
Section  2130,  subd.  3;  Code,  Section  2071)  or  upon  the  comp- 
troller (Article  16).  The  writ  must  be  made  returnable,  within 
twenty  days  after  the  service  thereof,  at  the  office  of  the  Clerk  of 


174  REMEDIES,   CERTIORARI,   COLLECTIONS 

Albany  County,  wherein  the  determination  to  be  reviewed  was  made. 
(Code,  Section  2132.) 

After  the  writ  has  been  issued,  the  time  to  make  a  return  thereof 
may  be  enlarged,  or  any  other  order  may  be  made,  or  proceeding, 
taken  in  the  cause,  as  a  similar  proceeding  may  be  taken  in  an 
action  brought  in  the  Supreme  Court  and  triable  in  the  county 
where  the  writ  is  returnable  (Code,  Section  2133).  The  clerk  with 
whom  the  writ  is  filed  and  the  person  upon  whom  the  writ  is  served 
must  make  and  annex  to  the  writ  or  to  the  copy  served,  a  return, 
with  a  transcript  annexed  and  certified  by  him,  of  the  record  or 
proceedings,  and  a  statement  of  the  other  matter,  specified  in  and 
required  by  the  writ.  The  return  under  Articles  9  or  9 -a  must  be 
filed  in  the  office  of  the  clerk  of  Albany  County,  where  the  writ  is 
returnable  (Code,  Section  2134).  In  the  case  of  the  Personal 
Income  Tax  (Article  16)  presumably  the  comptroller  must  file  a 
like  return,  although  the  new  law  divides  the  State  into  districts 
for  convenience  of  administration  under  Section  372  (Article  16). 
If  the  return  is  defective  the  court  may  direct  a  further  return 
(Code,  Section  2135).  The  cause  must  be  heard  at  a  term  of  the 
Appellate  Division  of  the  Supreme  Court,  Third  Department. 
Either  party  may  notice  it  for  hearing  at  any  time  after  the  return 
is  complete  (Code,  Section  2138).  It  must  be  heard  upon  the  writ 
and  return,  and  the  papers  upon  which  it  was  granted  (Code,  Sec- 
tion 2138),  except  where  the  chairman  of  the  commission  (or  the 
comptroller)  whose  duty  it  is  to  make  the  return,  dies,  absconds, 
removes  from  the  State  or  becomes  insane,  after  the  writ  is  issued, 
and  before  making  a  return,  or  after  making  an  insufficient  return ; 
and  it  appears  that  there  is  no  other  person  from  whom  a  sufficient 
return  can  be  procured  by  means  of  a  new  writ;  then  the  court 
may,  in  its  discretion,  permit  affidavits  or  other  written  proofs 
relating  to  the  matters  not  sufficiently  returned,  to  be  produced, 
and  may  hear  the  cause  accordingly.  The  court  may  also,  in  its 
discretion,  permit  either  party  to  produce  affidavits  or  other  written 
proof  relating  to  any  alleged  error  of  fact,  or  any  other  question 
of  fact,  which  is  essential  to  the  jurisdiction  of  the  commission 
to  make  the  determinations  to  be  reviewed  where  the  facts,  in 


OERTIORARl  175 

relation  thereto,  are  not  sufficiently  stated  in  the  return,  and  the 
court  is  satisfied  that  they  cannot  be  made  to  appear,  by  means  of 
an  order  for  a  further  return  (Code,  Section  2139).  The  final 
orders  upon  the  hearing  may  annul  or  confirm  wholly  or  partly,  or 
may  modify,  the  determination  reviewed  (Code,  Section  2141). 
Such  final  order  must  be  entered  in  the  office  of  the  clerk  where  the 
writ  was  returnable.  But  before  it  can  be  enforced,  an  enrollment 
thereof  must  be  final.  For  that  purpose,  the  clerk  must  attach 
together  and  file  in  his  office,  the  papers  upon  which  the  cause  was 
heard;  a  certified  copy  of  the  final  order;  and  a  certified  copy  of 
each  order,  which  in  any  way  involves  the  merits  or  necessarily 
affects  the  final  order  (Code,  Section  2144). 

General  provisions. — In  certiorari  proceedings  as  comprehended 
by  Section  199  of  the  Tax  Law,  it  is  only  a  hearing  on  the  merits 
which  is  to  be  had  in  the  Appellate  Division,  and  incidental  motions 
should  be  heard  at  Special  Term.  People  ex  rel.  McNeary  v. 
McLean,  64  Hun,  205.  But  this  case  has  been  criticised  in  People 
ex.  rel.  Joline  v.  Willcox,  129  App.  Div.  267,  which  holds  that  appli- 
cations to  modify  writs  are  entertained  by  the  Appellate  Division. 
And  a  motion  under  Code,  Section  1348,  to  quash  a  writ  of  cer- 
tiorari may  be  heard  by  the  Appellate  Division,  and  Section  2138 
does  not  limit  the  jurisdiction  of  that  branch  of  the  court  to  a 
hearing  on  the  issues.  People  ex  rel.  Joline  v.  Willcox,  supra,  crit- 
icising People  ex.  rel.  Miller  v.  Peck,  73  App.  Div.  89.  In  review- 
ing a  decision  by  the  commission  (or  the  comptroller),  the  court  is 
not  governed  by  the  same  rules  as  are  applicable  on  an  appeal  from 
a  judgment  entered  in  an  ordinary  action  of  law.  People  v.  Camp- 
bell, 88  Hun,  544. 

The  relator. — Under  Section  199  of  the  Tax  Law,  any  person, 
partnership,  company,  association  or  corporation  affected  is  given 
the  right  to  review.  That  section  must  be  construed  in  conjunction 
with  Article  9-a,  Section  219  of  the  Tax  Law,  and  Section  325 
(Article  16). 

Time  limitation  for  making  application  for  writ. — Within 
thirty  days  after  service  of  the  notice  of  the  determination  of  the 


176  REMEDIES,    CERTIORARJ,    COLLECTIONS 

commission  (or  the  comptroller).,  the  application  for  the  writ  must 
be  made  and  the  commission  (or  comptroller)  must  receive  eight 
days'  notice  of  such  application  (Tax  Law,  Sections  219,  375). 
This  provision  is  to  be  read  together  with  Code,  Section  2128, 
which  provides  that  where  notice  is  given,  the  person  served  may 
produce  affidavits  or  other  written  proofs,  upon  the  merits,  in  oppo- 
sition to  the  application. 

The  objection  that  the  application  for  the  certiorari  was  not 
made  within  thirty  days  after  service  upon  relator  of  the  notice 
of  determination,  as  required  by  the  statute,  cannot  be  raised  for 
the  first  time  on  appeal.  People  ex  rel.  H.  &  H.  Co.  v.  Campbell, 
139  N.  Y.  68. 

Prior  to  the  Tax  Law  of  1896  it  was  held  in  People  ex  rel.  Amer- 
ican Contracting  Co.  v.  Wemple,  60  Hun,  225;  followed,  People  ex 
rel.  Brush  El.  Mfg.  Co.  v.  Wemple,  129  N.  Y.  543,  549,  that  the 
thirty  days'  limit  of  time,  prescribed  by  Section  17  of  Chapter  501, 
Laws  of  1885,  for  the  application  for  a  writ  of  certiorari,  did  not 
apply  to  the  issuing  of  such  writ  under  Section  20  of  Chapter  463, 
Laws  of  1889,  but  it  would  now  seem  that  under  the  language  of 
Section  199  of  the  Tax  Law,  the  thirty  days'  limit  of  time  applies 
to  any  determination  by  the  commission  under  this  article. 

When  the  application  to  the  comptroller  for  revision  and  read- 
justment has  been  signed  but  not  verified,  the  court  on  the  cer- 
tiorari proceeding  cannot  assume  in  this  respect  that  there  was  not 
sufficient  proof  before  the  commission.  People  v.  Campbell  &  Rob- 
erts, 88  Hun,  545.  Section  798  of  the  Code  provides  that  where  a 
notice  must  be  given,  or  a  paper  served,  within  a  specified  time,  if 
the  service  is  made  through  the  postoffice,  three  days  shall  be  added 
to  the  time  specified. 

Application  for  revision  as  prerequisites  to  the  writ. — The 
Tax  Law  (Sec.  199)  provides  that  the  determination  upon  any 
application  made  to  the  commission  for  a  revision  and  resettle- 
ment of  any  account  may  be  reviewed  and  this  language  clearly 
makes  the  application  for  revision  and  resettlement  a  prerequisite 


CERTIORARI 

because  it  is  only  the  determination  upon  any  application  for  re- 
vision and  resettlement  that  may  be  reviewed. 

Unless  the  corporation  aggrieved  first  makes  application  for  a 
revision  or  resettlement  under  Section  199  of  the  Tax  Law,  the 
writ  of  certiorari  cannot  be  sustained.  People  ex  rel.  Edison  Co.  v. 
Wemple,  11  Supp.  246. 

The  statute  contemplates  but  one  revision  by  the  comptroller  or 
the  commission  and  after  it  has  been  made,  the  power  is  spent  and 
a  refusal  to  make  a  second  revision  cannot  be  reviewed  by  certiorari. 
People  ex  rel.  Am.  Surety  Co.  v.  Campbell,  64  Hun,  417,  cited  in 
People  ex  rel.  Edison  Co.  v.  Wemple,  69  Hun,  367-369.  Where 
the  comptroller  (or  commission)  denies  a  revision  or  readjustment 
upon  an  application  therefor,  certiorari  is  the  proper  remedy.  Peo- 
ple ex  rel.  Edison  Co.  v.  Wemple,  61  Hun,  53. 

Petition. — Where  the  relator  signed  the  petition  and  was  named 
in  the  affidavit  of  verification,  it  is  sufficient,  although  he  did  not 
sign  the  verification.  People  v.  Campbell,  88  Hun,  544. 

The  writ  when  the  commission's  term  has  expired. — In  Mat- 
ter of  Tiffany  &  Co.,  80  Hun,  486,  it  was  held  that  a  writ  is  prop- 
erly directed  to  the  successor  of  the  comptroller  who  made  the 
determination  and  that  the  former  comptroller  is  not  a  necessary 
party.  By  analogy  it  would  seem  that  the  writ  is  properly  directed 
to  the  succeeding  chairman  of  the  commission. 

Containing  unauthorized  directions. — When  the  writ  contains 
a  direction  to  the  commission  to  return  the  grounds  of  its  refusal 
to  revise  a  tax,  such  provision  may  be  stricken  out  on  motion  as 
unauthorized  under  the  statute.  People  ex  rel.  N.  Y.  Realty  Co. 
v.  Miller,  92  App.  Div.  116. 

Return. — Where  the  return  states  that  the  principal  business  of 
the  corporation  was  the  owning  of,  and  the  licensing  of  parties  to 
use  various  patents  relating  to  electricity;  that  its  principal  income 
was  derived  from  royalties  upon  its  patents;  that  its  capital  was 
largely  represented  by  its  ownership  of  bonds  and  stocks  in  other 
companies,  and  further,  that  the  relator  furnished  but  little,  if  any, 
light  or  ran  or  operated  wire  to  any  extent;  it  was  held  that  the 


178 


REMEDIES,   CERTIORARI,    COLLECTIONS 


return  did  not  deny  the  relator's  statement  that  it  manufactu 
and  furnished  electricity  to  its  customers.  People  ex  rel.  Ediso 
Company  v.  Campbell,  88  Hun,  527.  The  return  of  the  commission 
is  conclusive  as  to  the  facts.  People  ex  rel.  Edison  Co.  v.  Campbell, 
88  Hun,  530;  reversed  on  other  grounds  in  148  N.  Y.  759.  Th 
return  of  the  commission  should  state  the  facts  upon  which  it  ba 
its  determination  and  should  show  the  whole  case,,  so  that  the  court 
may  determine  whether  the  action  of  the  commission  was  erroneous 
or  illegal  and  if  so,  that  the  court  may  make  the  proper  determina- 
tion. People  ex  rel.  Staten  Island  R.  R.  Co.  v.  Roberts,  4  App. 
Div.  334. 

Where  allegations  in  the  petition  are  denied  by  the  return  an 
no  evidence  is  given  in  support  of  such  allegations  so  denied,  they 
will  not  be  considered.    People  ex  rel.  Hubert  Apartment  Ass'n 
Kelsey,  110  App.  Div.  617;  citing  on  this  point,  People  ex  rel 
Lester  v.  Eno,  176  N.  Y.  513 ;  aff'd  184  N.  Y.  573. 

The  statute  nowhere  authorizes  or  requires  the  commission 
return,  in  obedience  to  the  writ,  the  grounds  of  its  refusal  to  revise 
or  readjust  the  tax  imposed  upon  a  corporation.     If  the  writ  con 
tains  such  a  provision  it  may  be  stricken  out  on  motion  as  unau 
thorized.    People  ex  rel.  N.  Y.  Realty  Co.  v.  Miller,  92  App.  Div 
116. 

It  seems  that  the  return  of  the  commission  to  a  certiorari  shoul 
set  forth  the  items  of  its  appraisal,  instead  of  simply  giving  th 
total,  and  making  the  evidence  a  part  of  the  return.  People  e 
rel.  Union  Pacific  Tea  Co.  v.  Roberts,  145  K  Y.  375. 


: 

! 


Further  return. — A  further  return  by  the  commission  cannot  be 
had  when  its  return  contains  all  the  evidence  and  proceedings 
before  it,  including  its  decision.  People  ex  rel.  Wiebusch  &  H.  Co. 
v.  Roberts,  18  Misc.  530;  reversed  on  other  grounds,  19  App.  Div. 
574. 

The  court,  under  Section  2135  of  the  Code,  empowering  it 
direct  a  "further  return"  to  a  writ  of  certiorari  may  order  con- 
cededly  irrelevant  matter  to  be  stricken  out.    People  ex  rel.  Joline 
v.  Willcox,  134  App.  Div.  563. 


to 

' 


CERTIORARI  179 

Burden  of  proof. — Unless  it  clearly  and  conclusively  appears 
that  the  valuation  was  erroneous,  the  decision  of  the  commission  ia 
conclusive  and  will  not  be  set  aside.  People  ex  rel.  Roebling's  Sons' 
Co.  v.  Wemple,  138  N.  Y.  582 ;  People  ex  rel.  Am.  Contracting  Oo. 
v.  Wemple,  60  Hun,  225;  citing  People  ex  rel.  Osgood  v.  Tax  Com- 
mrs,  99  N".  Y.  154;  People  ex  rel.  West  F.  I.  Co.  v.  Davenport,  91 
N".  Y.  574;  People  ex  rel  Dann  v.  Williams,  36  N.  Y.  441;  People 
ex  rel.  Central  Park,  etc.  R.  R.  Co.  v.  Tax  Comm'rs,  21  N.  Y.  St. 
Rep.  358 ;  People  ex  rel.  P.  R.  R.  Co.  v.  Tax  Comm'rs,  104  N.  Y. 
240;  affirmed  129  N.  Y.  558;  People  ex  rel.  BUyn.  El.  R.  R.  Co. 
v.  Roberts,  90  Hun,  537;  People  ex  rel.  Am.  Axe  &  Tool  Co.  v. 
Roberts,  82  Hun,  313;  People  ex  rel.  Edison  El.  Co.  v.  Campbell, 
88  Hun,  530;  affirmed  on  this  point  in  148  N.  Y.  759;  People  ex 
rel.  Stokes  v.  Roberts,  90  Hun,  533;  People  ex  rel.  Western  Co.  v. 
Campbell,  145  N.  Y.  587;  People  ex  rel.  Seth  Thomas  Clock  Co.  v. 
Wemple,  133  N.  Y.  323. 

The  burden  rests  upon  the  relator  to  show  error  or  mistake  in 
reviewing  the  determination  of  the  commission.  People  ex  rel. 
BUyn.  El.  R.  R.  Co.  v.  Roberts,  90  Hun,  537;  People  ex  rel.  West- 
ern Elec.  Co.  v.  Campbell,  80  Hun,  466;  People  ex  rel.  A.  C.  &  D. 
Co.  v.  Wemple,  129  N.  Y.  558;  People  ex  rel.  Osgood  et  at.  v. 
Comms,  99  K  Y.  154;  People  ex  rel.  Am.  Axe  &  Tool  Co.  v.  Rob- 
erts, 82  Hun,  314;  People  ex  rel.  Roebling's  Sons  Co.  v.  Wemple, 
138  N.  Y.  582 ;  People  ex  rel.  Gramercy  Co.  v.  Roberts,  91  Hun,  146. 

The  determination  and  appeal  therefrom. — When  the  Appel- 
late Division  reverses  a  determination  of  the  commission,  not  as  to 
the  amount  of  the  corporation's  property  held  within  the  State, 
but  as  to  the  taxable  character  of  a  part  of  it,  a  question  of  law  is 
presented,  reviewable  by  the  Court  of  Appeals.  People  ex  rel.  Com- 
mercial Cable  Co.  v.  Morgan,  178  N.  Y.  433;  reversing  86  App. 
Div.  577. 

In  reviewing  the  decision  of  the  commission,  the  Appellate  Di- 
vision is  not  governed  by  the  same  rules  as  are  applicable  on  an 
appeal  from  a  judgment  entered  in  an  ordinary  action  of  law.  Peo- 
ple v.  Campbell,  88  Hun,  544. 


180 


REMEDIES,   CERTIORARI,    COLLECTIONS 


It  is  the  duty  of  the  commission  upon  an  application  for  revisioi 
and  readjustment  to  make  its  determination  upon  the  evidence 
taken  at  the  original  hearing  and  to  send  written  notice  of  sucl 
determination  to  the  corporation,  as  required  by  Section  196,  nol 
withstanding  the  corporation  refuses  to  produce  additional  eviden< 
where  the  commission  declines  to  make  a  revision  and  readjust- 
ment unless  further  examination  is  had.    People  ex  rel.  Studebtikei 
v.  Knight,  66  App.  Div.  150. 

Under  the  provision  of  Section  199,  that  "the  commission  shall 
return  on  such  certiorari,  the  accounts  and  all  the  evidence  before 
it  on  such  application,"  if  the  relator,  instead  of  producing  wit- 
nesses, furnishes  affidavits  which  are  received  without  objection  b] 
the  commission  and  considered  by  it  as  evidence,  the  objection  can- 
not be  raised  on  appeal  that  such  evidence  was  not  competenl 
People  ex  rel.  Harlan  &  H.  Co.  v.  Campbell,  139  N.  Y.  68. 

Where  the  determination  of  an  assessment  against  a  foreign  cor- 
poration is  reversed,  the  Appellate  Division  will  not  undertake 
modify  the  same,  but  will  remand  the  case  to  the  commission  foi 
further  proceedings.  People  ex  rel.  Nat.  E.  &  S.  Co.  v.  Miller, 
112  App.  Div.  880. 

When  remitted  to  commission  for  re-assessment. — On  ap- 
peal to  the  Appellate  Division,  if  the  commission  has  adopted  ai 
erroneous  method  of  appraisement,  the  matter  should  be  remitte( 
to  it  for  reassessment  and  not  corrected  by  the  court,  as  testimony 
may  be  presented  which  might  change  the  result.  People  ex  rel. 
Nat'l  Enameling  Co.  v.  Miller,  supra. 

Statute  of  limitations. — The  statute  of  limitations  does  nol 
apply  to  proceedings  to  review  the  comptroller's  determination  un- 
der Chapter  542,  Laws  of  1880.  People  ex  rel.  Edison  Elec.  Light 
Co.  v.  Campbell,  88  Hun,  527. 

Costs. — Section  2143  of  the  Code  of  Civil  Procedure  provide 
that  costs  not  exceeding  fifty  dollars  and  disbursements  may  be 
awarded  by  the  final  order,  in  favor  of  or  against  either  party,  in 
the  discretion  of  the  court. 


CERTIORARI  181 

The  provision  with  respect  to  costs  contained  in  Section  294  of 
the  Tax  Law  are  not  applicable  to  certiorari  proceedings  to  review 
the  determination  of  the  commission,,  but  apply  only  in  cases  under 
the  special  statutory  writ  of  Section  290  of  the  Tax  Law.  And  vice 
versa  Section  2143  of  the  Code  does  not  apply  to  such  cases.  Peo- 
ple ex  rel.  Niagara  Falls  Co.  v.  Eussell,  57  Hun,  53. 

Estoppel  as  to  matters  of  record. 

On  appeal  to  the  Court  of  Appeals  from  the  Appellate  Division, 
the  corporation  may  be  estopped  from  asserting  that  certain  prop- 
erty is  a  liability  instead  of  an  asset;  for  instance,  if  it  alleges  the 
issuance  of  preferred  "debenture  stock,"  referred  to  in  its  certifi- 
cate of  incorporation,  as  a  liability  instead  of  an  asset.  People  ex 
rel.  Cohn  &  Co.  v.  Miller,  180  N.  Y.  16 ;  affirming  94  App.  Div.  564. 

Refund  of  tax,  when  declared  illegal  on  certiorari;  interest. 

There  is  no  provision  by  which  the  commission  may  refund  a 
deposit  of  a  tax  declared  illegal  on  certiorari.  Eecourse  must  there- 
fore be  had  to  the  Legislature.  In  re  Waterman  Co.  v.  Oilman,  33 
Misc.  569.  It  seems  that  interest  should  be  allowed  by  the  State 
on  a  refund.  People  ex  rel.  Knickerbocker  Trust  Co.  v.  Kelsey, 
114  App.  Div.  319;  Matter  of  O'Berry,  179  N.  Y.  285. 

Refund  and  credit  before  certiorari. — A  refund  of  the  whole 
or  part  of  a  tax  under  Section  219-d,  Article  9-a,  and  under  Sec- 
tion 37*7,  Article  16,  as  well  as  the  credit  to  be  allowed  corpora- 
tions for  excess  payment  of  taxes,  cover  taxes  paid  or  accounts 
stated  by  the  state  tax  commission  or  the  comptroller  before  cer- 
tiorari proceedings  have  been  instituted  to  correct  the  erroneous  or 
illegal  assessments. 


PART  IV 

TAX  ON  PERSONAL  INCOMES 

(Article  16  of  the  Tax  Law.) 

WITH  THE  TREASURY  REGULATIONS  AND  DECISIONS  GOVERNING  LIKE 
PROVISIONS  OF  THE  FEDERAL  INCOME  TAX  ACT 


CHAPTER  XXIII. 

BRIEF  ANALYSIS  OF  THE  PERSONAL  INCOME  TAX. 

The  tax  levied  upon  personal  incomes  introduced  in  this  state  in 
1919  by  Chapter  627  of  the  laws  of  that  year,  marks  an  innovation 
in  New  York  State's  fiscal  policy. 

In  general,,  it  may  be  said  that  the  New  York  law  has  copied 
the  Federal  Income  Tax  Act,  substituting  "taxpayer  other  than  a 
resident"  for  "non-resident  alien"  and  "January  1,  19 19,"  for 
"March  1,  1913."  The  remedial  procedure  and  method  of  collection 
in  the  New  York  Corporation  Tax  Laws  (Arts.  9  and  9-a)  are  sub- 
stituted for  the  Federal  procedure.  Remedies  and  collections  are 
treated  in  full  under  Part  III. 

Under  this  act  all  single  persons  residing  in  the  state  having  in- 
comes of  $1,000  or  more  and  married  persons  having  incomes  of 
$2,000  or  more  will  pay  the  state  on  or  before  March  15th,  next,  a 
tax  based  on  the  following  graduated  scheme : 

Rate  of  Tax. — 1%  of  incomes  up  to  and  including  $10,000. 
2%  of  amount  of  net  income  in  excess  of  $10,000  but  not  exceeding 
$50,000.  3%  of  the  amount  of  net  income  in  excess  of  $50,000. 

Payment. — This  tax,  like  the  Federal  Tax,  is  self-assessed  and 
payable  at  the  time  of  the  making  of  the  return,  which  is  coin- 
cident with  that  of  making  the  federal  income  tax  return,  except 
that  it  is  payable  in  one  instalment.  Provision  is  made  for  an 
exemption  of  $200  for  each  dependent. 

Non-residents. — Non-residents  (individuals)  of  the  state  are 
taxed  at  the  same  graduated  rates  upon  the  income  from  all  prop- 
erty owned  and  from  every  business,  trade,  or  profession  carried 
on  in  the  state,  without  the  personal  exemption. 

First  assessment  for  1919. — The  tax  shall  first  be  levied,  col- 
lected and  paid  in  the  year  1920  upon  and  with  respect  to  the  tax- 

185 


186 


TAX   ON   PERSONAL   INCOMES 


able  income  for  the  calendar  year  1919,  or  for  any  taxable  y( 
ending  during  the  year  1919. 

Exemptions : 

(a)  The  tax  is  imposed  on  single  persons  receiving  more 
$1,000  and  on  married  persons  earning  more  than  $2,0( 
Provision  is  made  for  an  exemption  of  $200  for  each  depei 
ent. 

(b)  Proceeds  of  life  insurance  policies. 

(c)  Eeturn  premiums  of  insurance. 

(d)  The  value  of  property  acquired  by  gift,  bequest,  devise 
descent  (but  not  the  income  therefrom). 

(e)  Interest  on  government  obligations,  federal  farm  loan  seci 
ities,  war  finance  corporation  bonds,  interest  on  obligations 
New  York  State,  or  of  any  municipal  corporation  or  politic 
subdivision  thereof;  income  from  securities  on  which  the 
on  investment  has  been  paid  under  Section  331  of  the 
York  Tax  Law. 

(f)  Amounts  received  through  accident  or  health  insurance, 
under  workmen's  compensation  acts,  compensation   for 
sonal  injuries  or  sickness,  plus  damages  received  by  suit 
agreement  on  account  of  such  injuries  or  sickness,  or  throi 
war  risk  insurance  or  any  law  for  the  benefit  or  relief 
injured  or  disabled  members  of  the  United  States  military 
naval  forces. 

(g)  Salaries  received  by  federal  employees  including  those  in 
military  and  naval  forces. 

(h)  Income  received  by  officers  of  a  religious  denomination  or 
any  institution  for  moral  or  mental  improvement,  religioi 
bible,  tract,  charitable,  benevolent,  fraternal,  missionary,  h< 
pital,  infirmary,  educational,  scientific,  literary,  library,  pa- 
triotic, historical  or  cemetery  purposes,  or  for  the  enforcerm 
of  laws  relating  to  children  or  animals. 

Determination  of  net  income. — The  determination  of  net 
come  under  the  law  is  arrived  at  by  deducting  from  the  gross 
come  reported,  the  amount  of  the  deduction  allowed  under  the  li 


ANALYSIS  OF  INCOME  TAX  187 

The  ascertainment  of  gain  or  loss  through  the  exchange  of  prop- 
erty or  through  merger  or  consolidation  or  through  reorganiza- 
tion, the  computation  of  net  income  through  inventory,  the  defini- 
tion of  gross  income  and  the  various  deductions  allowed  for  busi- 
ness expense,  interest,  taxes,  losses,  bad  debts,  depreciation,  deple- 
tion, contribution  and  the  items  not  deductible  for  personal  ex- 
penses, permanent  improvements,  restoration  of  property,  pre- 
miums for  life  insurance  covering  the  life  of  officer  or  employee, 
are  substantially  the  same  as  those  under  the  federal  law. 

Deduction  of  non-residents. — Non-residents  of  the  state  are 
only  allowed  such  proportion  of  deduction  as  the  income  arising 
from  sources  within  the  state  bears  to  the  total  income.  The  proper 
apportionment  and  allocation  of  deductions  with  respect  to  sources 
of  income  within  and  without  the  state  shall  be  determined  under 
rules  and  regulations  prescribed  by  the  comptroller. 

Returns. 

Partnerships. — Partnerships  must  file  a  return  stating  the  items 
of  gross  income,  allowable  deductions  and  the  names  and  addresses 
of  individual  partners,  with  the  distributive  share  of  each,  the 
partners  being  taxed  in  their  individual  capacity  on  their  pro- 
portionate share  in  the  business. 

Estates  and  trusts. — Estates  and  trusts  are  taxed  practically 
the  same  as  under  the  provisions  of  the  Federal  Income  Tax  Law, 
except  that  a  non-resident  estate  shall  be  deemed  one  where  the 
estate  belongs  to  a  person  not  a  resident  of  the  state  at  the  time 
of  his  death,  and  shall  be  taxed  in  the  same  manner  as  individual 
non-residents.  The  return  of  income  by  estates  and  trusts  must 
be  made  by  the  fiduciary.  Where  income  is  received  during  periods 
of  administration  or  in  settlement  of  the  estate,  or  accumulated 
for  the  benefit  of  unascertained  persons  or  persons  with  a  con- 
tingent interest,  or  for  future  distribution  under  the  terms  of  the 
will  or  trust,  the  tax  shall  be  assessed  against  the  estate  or  trust 
instead  of  against  the  beneficiary. 

In  the  case  of  income  which  is  distributed  to  the  beneficiary 
periodically  and  in  case  of  income  collected  by  a  guardian  of  an 


188 


TAX   ON   PERSONAL   INCOMES 


infant,  to  be  held  or  distributed  as  the  court  may  direct,  and  in 
the  case  of  income  of  an  estate  during  the  period  of  administration 
or  settlement,  the  tax  shall  not  be  paid  by  the  fiduciary  but  there 
shall  be  included  in  computing  the  net  income  of  each  beneficiary, 
his  distributive  share  whether  distributed  or  not.  In  such  cases 
the  income  of  a  beneficiary  of  such  estate  or  trust  not  a  resident, 
shall  be  taxable  only  to  the  extent,  derived  from  sources  within 
the  state. 

Information  returns  and  withholding  agents. — A  withholding 
agent,  under  paragraph  10  of  Subdivision  350,  includes  "All  indi- 
viduals, corporations,  associations  and  partnerships,  in  whatever 
capacity  acting,  including  lessees,  or  mortgagors  of  real  or  personal 
property,  fiduciaries,  employers,  and  all  officers  and  employees  of 
the  state,  or  of  any  municipal  corporation  or  political  subdivision 
of  the  state,  having  the  control,  receipt,  custody,  disposal  or  pay- 
ment, of  interest,  rent,  salaries,  wages,  premiums,  annuities,  com- 
pensations, remunerations,  emoluments  or  other  fixed  or  deter- 
minable  annual  or  periodical  gains,  profits  and  income  taxable 
under  this  article,  and  shall  make  return  of  complete  information 
concerning  such  rent,  salaries,  wages,  etc.,  and  shall  deduct  and 
withhold  2%  from  all  "salaries,  wages,  commissions,  annuities, 
emoluments,  and  other  fixed  or  determinable  annual  or  periodical 
gains,  profits  and  income,  of  which  he  shall  have  control,  receipt, 
custody,  disposal  or  payment,  if  the  amount  paid  or  received  or  to 
be  paid  or  received  in  any  year  equals  or  exceeds  $1,000,  unless 
there  shall  be  filed  with  the  withholding  agent  before  the  time  to 
return  any  payment,  a  certificate  prescribed  by  the  comptroller,  to 
the  effect  that  the  person  entitled  to  such  salary,  wage,  commis- 
sion, etc.,  is  a  resident  and  setting  forth  his  residence  in  the  state. 

A  withholding  agent  is  required  to  make  a  return  on  or  before 
March  15th,  and  shall  at  the  same  time  be  compelled  to  pay  the  tax 
withheld  to  the  comptroller. 

Corporations  and  partnerships  are  made  liable  for  the  tax  and 
indemnified  against  claims  and  demands  by  individuals  or  part- 
nerships. 


ANALYSIS  OP  INCOME  TAX  189 

Income  withheld  shall  be  included  in  the  return  of  the  recipient 
of  such  income,  and  that  the  amount  withheld  shall  be  credited  to 
the  amount  of  the  income  tax  in  each  case. 

Administration  of  the  law  by  the  comptroller. — The  State 
Comptroller  shall  administer  the  law  dividing  the  state  into  con- 
venient tax  districts.  No  district  to  be  less  than  a  county. 

Powers   of   comptroller:    revision    and   readjustment. — The 

comptroller  may  in  his  own  discretion,,  where  an  incorrect  return 
is  filed,  revise  the  same  on  his  own  motion.  He  may  make  exam- 
inations of  the  books  and  records  of  the  taxpayer  and  take  testi- 
mony. 

Revision  and  readjustment.  Certiorari. — The  taxpayer  has 
the  same  rights  of  revision  and  to  the  review  of  the  courts  by  cer- 
tiorari  as  under  Articles  9  and  9-a  of  the  Tax  Law. 

Penalties. — A  person  failing  to  make  a  return  or  making  a 
false  or  fraudulent  return  is  guilty  of  a  misdemeanor  and  is  liable 
to  a  fine  of  not  exceeding  $1.000  or  imprisonment  not  exceeding 
one  year,  or  both.  Penalties  are  provided  for  delay  in  making 
returns. 


CHAPTER   XXIV. 
CONSTITUTIONALITY. 

There  are  few  restrictions  on  taxation  in  the  New  York  Consti- 
tution, but  a  provision  that  has  given  the  courts  some  concern  and 
that  on  its  face  does  not  appear  to  have  any  direct  bearing  on  tax- 
ation, is  what  is  known  as  the  "Home  Rule"  provision  which  reads 
as  follows: 

"Article  10,  Section  2.  All  county  officers  whose  election  or  appoint- 
ment is  not  provided  for  by  this  constitution,  shall  be  elected  by  the 
electors  of  the  respective  counties  or  appointed  by  the  boards  of  super- 
visors or  other  county  officers  as  the  legislature  shall  direct.  All  city, 
town  and  village  officers  whose  election  of  appointment  is  not  provided 
for  by  this  constitution,  shall  be  elected  by  the  electors  of  such  cities, 
towns  and  villages,  or  of  some  division  thereof,  or  appointed  by  such 
authorities  thereof  as  the  legislature  shall  designate  for  that  purpose. 
All  other  officers  whose  election  or  appointment  is  not  provided  for 
by  this  constitution,  and  all  officers  whose  offices  may  hereafter  be 
created  by  law,  shall  be  elected  by  the  people,  or  appointed,  as  the 
legislature  may  direct." 

This  provision  was  in  1903  invoked  in  People  ex  rel.  Metropol- 
itan Street  Railway  Co.  v.  Tax  Commissioners,  174  N.  Y.  417 
AfFd  199  U.  S.  1,  where  the  constitutional  right  of  the  legislature 
to  pass  the  special  franchise  tax  was  involved.  The  point  was 
raised  that  as  the  special  franchise  tax  was  required  to  be  assessed 
by  the  State  Tax  Commission  appointed  by  the  Governor,  this  was 
taking  away  from  the  local  tax  assessors  the  right  of  valuation, 
since  they  were  constitutional  officers  under  this  provision. 

The  Court  of  Appeals  decided  in  this  case  that  the  special  fran- 
chise tax  act  was  constitutional  on  the  ground  that  special  fran- 
chises gave  the  state  tax  commission  the  power  to  assess  a  new  form 
of  property,  and  that  while  some  real  estate  in  the  street  was 

190 


CONSTITUTIONALITY 

assessed  therewith,  it  was  only  incidental  to  the  new  form  of  tax- 
ation. 

Judge  Vann,  in  the  opinion  of  the  court,  said  that : 

"Home  rule,  as  understood  and  practiced  in  the  past,  giving  to 
localities  the  right  to  govern  themselves,  but  not  to  hamper  the  gov- 
ernment of  the  state,  should  be  carefully  protected  from  open  attack 
or  indirect  invasion.  Shadows,  however,  should  give  way  to  substance, 
and  the  right  to  create  a  new  system  of  taxation  and  bring  in  property 
of  a  new  character,  hitherto  untaxed,  with  some  other  property  inci- 
dental thereto  and  worthless  without  it,  cannot,  as  we  think,  be  denied 
upon  principle  and  should  not  be  withheld  from  the  legislature  unless 
required  by  some  controlling  decision  of  the  court." 

The  Same  provision  as  that  contained  in  the  New  York  Consti- 
tution (Article  X)  has  been  embodied  in  the  Wisconsin  Constitu- 
tion and  its  interpretation  came  before  the  Wisconsin  Supreme 
Court  in  the  case  of  State  ex  rel.  Daniels  v.  Hussy,  143  Wise.  649. 
In  that  case  there  was  involved  the  validity  of  an  act  of  the  Wis- 
consin legislature  which  authorized  a  reassessment  of  the  entire 
property  of  any  town,  city  or  village  by  the  state  tax  commission, 
if  it  should  be  found  that  the  original  assessment  had  not  been 
legally  made,  and  public  interests  required  a  reassessment. 

All  the  New  York  cases  including  the  special  franchise  tax  case, 
were  reviewed  in  the  Daniels  suit,  and  the  court  held  that  a  re- 
assessment by  a  state  officer,  of  an  illegal  assessment  made  by  local 
officers,  was  no  deprivation  of  home  rule. 

The  same  section  again  came  up  for  review  before  the  Wisconsin 
Courts  in  State  ex  rel.  Bolens  v.  Frear,  148  Wise.  456.  In  this  case 
the  new  Wisconsin  Income  Tax  Law  (Chapter  658  of  the  Laws 
of  1911),  was  attacked  on  the  ground  that  it  took  away  from  the 
local  assessor  the  power  to  tax  personal  property  and  turned  over 
to  a  new  officer  called  "Assessor  of  Incomes"  appointed  by  the 
state  tax  commission,  the  power  to  tax  property  in  the  form  of 
incomes. 

The  court  held  that  the  new  office  was  neither  a  county,  city, 
town  or  village  office,  nor  an  office  existing  at  the  time  of  the  adop- 
tion of  the  constitution,  or  essential  to  the  existence  or  efficiency 


192  TAX   ON   PERSONAL   INCOMES 

of  either  of  said  municipal  divisions  of  the  state,  but  rather  an 
entirely  new  office  whose  election  or  appointment  might  be  pro- 
vided for  by  the  legislature  in  its  discretion. 

The  "Home  Kule"  provision  contained  in  the  present  state  con- 
stitution was  taken  from  the  same  section  and  article  of  the  con- 
stitution of  1846.,  with  the  change  of  but  a  single  word.  At  the 
time  of  the  adoption  of  the  constitution  of  1846,,  assessors  were 
local  officers  exercising  the  functions  of  their  offices  in  the  various 
towns  or  villages,,  or  in  the  several  wards  of  cities.  They  had  been 
recognized  as  local  officers  by  the  first  constitution  of  this  state, 
which  provided  that 

"Town  clerks,  supervisors,  assessors,  constables  and  collectors  and 
all  other  officers  heretofore  eligible  by  the  people,  shall  always  con- 
tinue to  be  so  eligible." 

In  1915  there  was  submitted  to  the  voters  of  New  York,  a  pro- 
posed constitution  which  failed  of  adoption,  and  which  contained 
among  its  provisions  a  new  Article  X,  providing  for  a  different  form 
of  assessing  by  assessors  who  might  be  either  elected  or  appointed 
by  such  authorities  as  designated  by  law.  Sections  2  and  3,  Article 
X,  of  the  proposed  Constitution  read  as  follows : 

"The  legislature  shall  prescribe  how  taxable  subjects  shall  be  as- 
sessed, and  provide  for  officers  to  execute  laws  relating  to  the  assess- 
ment and  collection  of  taxes;  any  provision  of  Section  2  of  Article  13 
of  this  constitution  to  the  contrary  notwithstanding."  (Section  2, 
Article  13,  is  the  number  of  the  "Home  Rule"  provision  in  the  pro- 
posed constitution.) 

"Section  3.  For  the  assessment  of  real  property,  heretofore  locally 
assessed,  the  legislature  shall  establish  tax  districts,  none  of  which, 
unless  it  be  a  city,  shall  embrace  more  than  one  county.  The  assessors 
therein  shall  be  elected  by  the  electors  of  such  districts  or  appointed 
by  such  authorities  thereof  as  shall  be  designated  by  law.  The  legis- 
lature may  provide  that  the  assessment  roll  of  each  larger  district 
shall  serve  for  all  the  lesser  tax  districts  within  its  boundaries.  No 
such  tax  district  larger  than  a  town,  except  a  city,  shall  be  estab- 
lished until  the  law  providing  therefor  shall  have  been  adopted  by  a 
vote  of  a  majority  of  the  electors  voting  thereon  in  such  proposed 
district  at  an  election  for  which  provision  shall  be  made  by  law.  The 
legislature  may,  however,  provide  for  the  assessment  by  state  author- 


CONSTITUTIONALITY  193 

ities  of  all  the  property  of  designated  classes  of  public  service  cor- 
porations." 

In  submitting  these  changes  to  the  electorate,  the  framers  of  the 
proposed  article  stated : 

"That  these  sections  vest  complete  and  unhampered  power  in  the 
legislature  to  deal  effectively  with  the  subject  of  taxation  to  the  end 
that  property  now  notoriously  escaping  taxation  may  be  made  to 
bear  a  fair  and  just  share  of  the  burdens  of  government." 

There  evidently  was  a  realization  here  that  the  "Home  Kule" 
provision  did  not  permit  the  taxation  of  property  unless  the  same 
was  assessed  by  local  assessors.  In  a  recent  case,  People  ex  rel. 
Town  of  Pelham  v.  Pelham,  215  N.  Y.  374,  in  which  a  law  trans- 
ferring the  duties  of  village  collector  to  a  town  collector,  was  de- 
clared unconstitutional,  the  "Home  Rule"  provision  was  again  up- 
held in  these  words: 

"Local  functions,  however,  cannot  be  transferred  to  a  state  officer. 
The  legislature  has  the  power  to  regulate,  increase  or  diminish  the 
duties  of  the  local  officer  but  it  has  been  steadfastly  held  that  this 
power  is  subject  to  the  limitation  that  no  essential  or  exclusive  func- 
tion belonging  to  the  office  can  be  transferred  to  an  officer  appointed 
by  central  authority." 

Is  the  tax  on  incomes  an  assessment  on  a  new  form  of  prop- 
erty?— In  the  Metropolitan  Street  Railway  Company  case,  supra-, 
the  special  franchise  tax  law  was  upheld  because  it  conferred  the 
power  to  assess  a  new  form  of  property.  Will  it  be  held  that  the 
income  tax  act  brings  in  property  of  a  new  character?  As  far  back 
as  1778,  the  state  raised  some  of  its  revenue  by  means  of  an  income 
tax  (Chapter  17,  Laws  of  1778).  Under  this  provision  of  the  New 
York  law,  the  local  assessors  were  required  to  assess 

"each  and  every  person  within  their  respective  districts,  whom  they 
shall  know  or  suspect  to  have  gained  by  trade  merchandise,  traffic  or 
manufactory,  one  thousand  pounds  or  upwards  since  the  twelfth  day 
of  September  in  the  year  of  our  Lord,  One  thousand  seven  hundred 
seventy-six" 

a  tax  of  fifty  pounds  over  and  above  the  one  penny  half-penny  to 
be  assessed  upon  his  personal  estate  for  over  one  thousand  pounds 
so  gained. 


194  TAX   ON  PERSONAL  INCOMES 

While  the  Home  Rule  Provision  is  essentially  the  same  in  the 
Wisconsin  constitution  as  in  that  of  New  York,  the  history  of  local 
assessors'  duties  and  powers  in  this  state  differs  somewhat  from 
that  of  the  western  state  in  that  at  a  very  early  period  in  New 
York's  history,  the  power  was  conferred  upon  local  assessors  to  tax 
incomes.  Our  Courts  have  jealously  guarded  this  provision  of  the 
constitution,  but  it  is  not  easy  to  predict  what  position  they  may 
take  on  this  doubtful  point  in  view  of  the  opinion  in  the  New  York 
special  franchise  tax  case,  People  ex  rel.  Metropolitan  Street  Rail- 
way Co.  v.  Tax  Commissioners,  supra.  If  the  New  York  Courts 
hold  that  the  personal  income  tax  has  taken  away  the  local  assessors' 
powers  and  transferred  them  to  a  state  official  and  that  this  is  an 
infringement  of  the  "Home  Rule"  provision,  such  a  decision  would 
undoubtedly  annul  the  entire  law. 

Is  the  New  York  income  tax  contrary  to  the  federal  consti- 
tution?— There  seems  to  be  little  doubt  that  New  York  may  levy 
a  tax  upon  inhabitants  or  residents  of  the  state  based  on  the  entire 
net  income  whether  derived  from  property,  business  or  occupations. 
In  so  far  as  non-residents  are  concerned,  it  may  levy  a  tax  based  on 
net  income  from  sources  within  the  state,  provided  it  does  not  con- 
travene the  federal  constitution.  In  general,  it  may  be  said  that 
the  State  of  New  York  cannot  prevent  the  citizens  of  a  sister  state 
from  doing  business  in  this  state  on  any  other  basis  than  that 
accorded  to  her  own  citizens.  The  federal  constitution  has  guar- 
anteed this  in  the  4th  amendment  under  which  the  citizens  of  each 
state  are  entitled  to  all  the  privileges  and  immunities  of  every  other 
state.  The  federal  government  does  not  grant  a  non-resident  alien 
a  personal  exemption  of  $1,000  or  $2,000,  as  the  case  may  be.  The 
State  of  New  York  has  copied  this  provision  in  its  income  tax  law 
and  denied  the  citizens  of  other  states  residing  beyond  its  jurisdic- 
tion, the  personal  exemption,  although  all  the  income  of  such  cit- 
izens may  be  derived  from  sources  within  the  state.  There  is  a 
distinction  between  the  right  of  the  United  States  to  tax  a  non- 
resident alien  and  that  of  the  state  to  tax  a  citizen  of  another  state. 
The  federal  government  can  prevent  aliens  from  coming  into  this 


CONSTITUTIONALITY  195 

country  and  deport  them.  Chae  Chang  Ping  v.  U.  S.,  130  U.  S. 
581 ;  U.  S.  ex  rel  Turner  v.  Williams,  194  U.  S.  279 ;  Pong  Yue 
Ting  v.  U.  8.  149  U.  S.  968.  The  United  States  government  may 
prescribe  terms  under  which  aliens  may  do  business  here  or  prevent 
them  from  doing  business  here  altogether. 

The  New  York  State  income  tax  law,  in  computing  the  amount 
of  net  income  of  a  non-resident,  does  not  permit  the  deduction  of 
all  losses,  although  the  non-resident  may  have  sustained  losses  in 
other  states  to  such  an  extent  as  to  reduce  his  entire  income  from 
all  his  property  so  that  were  he  a  resident  of  the  State  of  New  York 
he  would  not  be  required  to  pay  any  income  tax  at  all.  On  the 
other  hand,  losses  of  a  non-resident  may  be  presumed  to  be  deducted 
at  his  domicile.  People  v.  Barker,  141  N.  Y.  586. 

The  next  point  of  inquiry  is  what  is  meant  by  sources  within  the 
state,  and  whether  in  taxing  the  income  from  salaries,  occupations 
and  professions  of  a  non-resident  we  are  taxing  income  from 
sources  within  the  state. 

It  has  been  held  in  State  v.  Wisconsin  Tax  Commission,  163 
Wise.  Ill,  that  in  the  Wisconsin  Act  of  1911,  imposing  a  tax  on 
such  part  of  the  non-resident's  income  derived  from  sources  within 
the  state  or  within  its  jurisdiction,  that  the  expression  "derived 
from  sources  within  the  state"  and  the  expression  "or  within  its 
jurisdiction"  are  considered  identical.  In  so  far  as  a  non-resident 
is  taxed  on  income  from  property  within  the  state,  or  on  the  earn- 
ings from  a  business  representing  capital  employed  within  the  state, 
the  question  is  no  greater  than  taxing  the  property  itself.  In  both 
of  these  cases  the  tax  is  derived  from  tangible  property  permanently 
located  in  the  state  or  from  money  or  capital  invested  in  business, 
capable  of  being  permanently  located  or  having  a  situs  in  the  state. 
The  moot  point  in  the  New  York  income  tax  law  is  the  situs  of 
the  income  derived  from  the  non-resident's  salary  or  earnings  from 
professions  or  occupations  carried  on  in  the  state.  Can  these  be 
said  to  be  from  sources  within  the  state?  In  taxing  foreign  cor- 
porations this  difficulty  of  situs  is  more  apparent  than  real. 
A  foreign  corporation  doing  business  within  the  state  has  a  situs 
here  and  must  obtain  a  certificate  permitting  it  to  do  business  in 


196  TAX   ON   PERSONAL  INCOMES 

the  state.  New  York  State  recognizes  the  apportionment  of  an 
income  in  such  cases  under  a  rule  permitting  a  segregation  of  the 
tangible  property,  and  accounts  accruing  from  business  within  and 
without  the  state.  In  the  case  of  inheritance  taxes,  the  right  as 
well  as  the  property  is  within  the  state.  Blackstone  v.  Miller,  188 
U.  S.  189. 

The  right  of  the  federal  government  to  tax  non-resident  aliens 
on  income  is  not  entirely  analogous  and  it  has  never  been  absolutely 
settled  according  to  some  legal  writers  (see  Black  on  Income  Tax) 
that  the  United  States  has  this  power  over  the  income  of  non- 
resident aliens.  In  connection  with  earnings  from  salaries,  occu- 
pations and  professions,  we  not  only  encounter  the  question  raised 
by  the  due  process  of  law  section  of  the  federal  constittion,  but  also 
the  limitation  on  the  taxing  power  of  the  state  in  connection  with 
interstate  commerce.  The  federal  courts  have  repeatedly  held  that 
an  agent  delivering  goods,  or  a  drummer  or  commercial  traveller 
making  sales  in  the  state,  cannot  be  taxed  as  such.  May  not  the 
contract  for  personal  services  of  a  non-resident  in  his  occupation 
be  considered  in  the  sense  of  a  sale  of  a  commodity,  and  is  not  the 
state's  exaction  of  the  tax  an  interference  with  commerce? 
A  lawyer  may  write  his  brief  in  New  Jersey  and  render  his  bill 
from  his  New  York  office.  An  architect  or  designer  may  formu- 
late his  plans  or  complete  his  designs  at  his  home  in  Connecticut, 
and  may  be  entitled  to  his  fees  or  salary  at  his  New  York  office. 
Professional  advice  may  be  given  over  the  telephone  in  New  Jersey 
and  bills  rendered  at  the  New  York  office. 

The  Comptroller  of  the  State  of  New  York  has  already  recog- 
nized the  necessity  of  apportioning  the  income  derived  by  a  non- 
resident from  employment  in  the  state,  by  promulgating  regula- 
tions in  explanation  of  the  new  law  under  which  a  non-resident 
salesman,  drummer  or  other  employee  may  apportion  his  earnings 
on  the  basis  of  business  transacted  and  time  employed  in  the  state. 
(See  Regulations,  infra.) 

The  question  of  interstate  commerce  as  applied  to  the  imposition 
of  the  state  income  tax  on  non-residents,  is  vitally  important  in 
relation  to  occupation  and  labor.  The  federal  constitution  grew 


CONSTITUTIONALITY  197 

out  of  the  necessity  for  freedom  of  commerce  between  the  different 
states,  and  a  limitation  on  occupations  and  labor  between  these 
equal  sovereignties  not  only  involves  the  legal  question  of  jurisdic- 
tion, but  matters  of  great  economic  concern. 

It  is  important  to  bear  in  mind  that  the  state  income  tax  is  a 
comparatively  new  revenue  feature  of  the  several  states.  Wiscon- 
sin's law,  which  has  been  in  effect  since  1911,  and  received  the 
approval  of  the  state  and  federal  courts,  taxes  residents  on  all 
income  derived  from  property  located  and  business  transacted 
within  the  state,  and  also  on  income  from  personal  service  con- 
tracts, mortgages,  stocks,  bonds  and  securities.  A  non-resident  is 
taxable  on  all  the  income  derived  from  property  located  and  busi- 
ness transacted  within  the  state,  and  not  on  income  derived  from 
personal  service,  land  contracts,  mortgages,  stocks,  bonds  and  secur- 
ities. 

The  Massachusetts  income  tax  law  taxes  only  residents.  It  does 
not  tax  non-residents  on  income. 

Oklahoma  and  Missouri  have  provisions  taxing  non-residents  like 
the  New  York  law,  and  in  Oklahoma  the  case  of  Shaffer  v.  Howard 
has  been  carried  to  the  United  States  Supreme  Court,  but  was  dis- 
missed on  a  jurisdictional  point.  In  the  lower  court,  250  Fed. 
Rep.,  page  874,  the  non-resident  provision  was  sustained,  one  of 
the  Justices  dissenting  and  writing  an  opinion.  The  case  involved 
in  Oklahoma  was  not  a  clear-cut  case  of  income  arising  from  occu- 
pations or  professions,  but  one  of  net  income  arising  from  property 
or  capital  invested  in  the  state. 

The  Missouri  statute  contains  a  provision  permitting  the  deduc- 
tion from  the  income  tax  of  taxes  paid  on  real  estate,  personal 
property,  etc.,  thus  making  the  act,  in  its  administration,  of  little 
value,  as  an  income  tax  measure. 


CHAPTER  XXV. 
BESIDENOE  FOB  PERSONAL  INCOME  TAXATION. 

The  income  tax  is  imposed  under  Section  351  of  the  Tax  Law  on 
every  resident  of  the  state  "upon  and  with  respect  to  his  entire  net 
income";  and  upon  individual  non-residents  the  tax  is  "upon  and 
with  respect  to  the  entire  net  income  as  herein  defined,  except  as 
hereinafter  provided,  from  all  property  owned  and  from  every  busi- 
ness, trade,  profession  or  occupation  carried  on  in  this  state  by  nat- 
ural persons  not  residents  of  the  state." 

Under  subdivision  7,  Section  350  of  the  law,  there  is  this  defini- 
tion of  a  resident. 

"7.  The  word  'resident'  applies  only  to  natural  persons  and  in- 
cludes for  the  purpose  of  determining  liability  to  the  tax  upon  or 
with  reference  to  the  income  of  any  taxable  year  commencing  with 
the  year  1919,  any  person  who  shall  at  any  time  on  or  after  January 
1st,  and  not  later  than  March  15th  of  the  next  succeeding  calendar 
year,  be  or  become  a  resident  of  the  state." 

It  will  thus  be  seen  that  residents  are  taxed  upon  their  entire 
income  while  non-residents  are  taxed  on  income  from  property 
located,  and  professions,  business,  etc.,  carried  on  within  the  state. 

Under  subdivision  3  of  Section  359  of  the  law  entitled  "Gross 
Income  Defined"  in  the  case  of  taxpayers  other  than  residents, 
gross  income  includes  only  the  gross  income  from  sources  within 
the  state  but  shall  not  include  annuities,  interest  on  bank  deposits, 
interest  on  bonds,  notes  or  other  interest  bearing  obligations  or 
dividends  from  corporations  except  to  the  extent  to  which  the  same 
shall  be  a  part  of  income  from  any  business,  trade,  profession  or 
occupation  carried  on  in  this  state  subject  to  taxation  under  this 
article." 

Since  there  is  therefore  this  essential  difference  between  the  tax- 
ation of  residents  and  non-residents,  one  being  taxed  on  income 

198 


RESIDENCE  FOR  PERSONAL  INCOME  TAXATION  189 

from  all  sources,  the  other  being  taxed  substantially  on  income 
from  sources  within  the  state,  it  will  be  important  to  inquire : — 

1.  What  constitutes  residence  for  the  purposes  of  the  New  York 

State  Income  Tax  Act? 

2.  What  is  meant  by  "sources  within  the  State?" 

What  is  a  resident? — While  the  New  York  law  simply  states 
that  a  resident  means  "an  individual  person  who  shall  between 
January  1st  and  March  15th,  be  or  become  a  resident,"  it  has  not 
attempted  to  define  what  circumstances  or  conditions  will  fir  res- 
idence for  the  purpose  of  personal  income  taxation.  Hence  we  must 
look  to  the  laws  of  this  state  and  of  other  states,  and  to  the  fed- 
eral law,  for  light  as  to  the  meaning  of  residence  for  the  purposes 
of  taxation. 

Residence  under  Federal  income  tax  law. — Under  Subdivi- 
sion 1,  Par.  A  of  the  Act  of  October  3d,  1913,  "residence"  is  held 
to  be  that  place  where  a  man  has  his  true  fixed  and  permanent 
home  and  principal  establishment,  and  to  which  whenever  he  is 
absent,  he  has  the  intention  of  returning ;  and  indicates  permanency 
of  occupation  as  distinct  from  lodging  or  board,  or  temporary  oc- 
cupation." 

Under  the  federal  income  tax  act,  "residence"  is  used  more  in 
the  sense  of  domicile,  the  word  "home"  being  referred  to  in  that 
statute.  "Domicile"  is,  in  law,  in  some  way  connected  with  the 
"home"  or  principal  residence  or  abiding  place  of  a  person.  Story 
on  Conflict  of  Law,  Section  41. 

David  Dudley  Field,  in  Section  280  of  his  International  Code, 
defines  "domicile"  as  the  "seat  or  permanent  residence — the  home." 
It  has  been  said,  however,  by  legal  writers  that  domicile  is  some- 
thing more  than  residence.  Eesidence  is  preserved  by  the  act — 
domicile  by  the  intention. 

This  idea  is  expressed  in  Bouvier's  Law  Dictionary  where  he 
defines  residence  as  generally  transient  in  its  nature;  it  becomes  a 
domicile  when  it  is  taken  up  animo  manendi. 

In  the  federal  law  the  distinction  between  residents  and  non- 
resident aliens  is  not  analogous  to  the  two  classes  under  the  state 


300 


TAX   ON   PERSONAL   INCOMES 


law,  because  the  federal  law  distinguishes  between  resident  aliens 
and  non-resident  aliens.  Eesident  aliens  are  taxed  substantially 
in  the  same  way  as  residents.  Whether  a  person  is  a  transient 
alien  or  a  resident  alien  is  to  be  determined  under  the  federal  law 
by  his  intention  with  regard  to  his  stay  (Article  311  Federal  In- 
come Tax).  This  is  further  explained  in  Article  312  where  it  is 
stated  that  the  alien's  intentions  with  regard  to  his  residence  are 
to  be  determined  by  his  own  statements  where  unequivocal;  other- 
wise, by  conduct,  acts  or  other  surrounding  circumstances  which 
may  contradict  his  statements.  The  fact  that  an  alien's  family  is 
abroad  does  not  necessarily  indicate  that  he  is  a  transient  rather 
than  a  resident. 

Residence  under  New  York  transfer  (inheritance)  tax  law. 

— tinder  the  state  law,  the  situation  is  more  complex  because  we 
have  to  deal  with  citizens  of  equal  sovereign  states ;  to  one,  he  owes 
allegiance  as  a  citizen  of  that  state,  and  in  the  other  he  may  have 
property  rights. 

Under  the  most  recent  decisions  under  our  New  York  Transfer 
Tax  Law,  it  has  been  held  that  residence  may  be  used  in  a  statute 
in  the  sense  of  domicile.  Matter  of  the  Estate  of  Hetty  Green,  99 
Misc.  582,  Aff  d  in  179  App.  Div.  890. 

Surrogate  Fowler,  in  the  learned  opinion  in  the  case  above  re- 
ferred to,  said  on  the  question  of  domicile,  among  other  things: 

"If  I  am  in  error  in  assuming  that  the  Appellate  Division,  in  Mat- 
ter of  Martin,  intended  to  hold  that  the  Taxable  Transfer  Act  means 
by  "resident"  one  domiciled  here,  then  that  act  operates  on  two  classes 
of  successions:  (1)  those  derived  from  residents  and  (2)  those  derived 
from  non-residents.  Residence  results  from  facts  alone,  not  from 
intention.  In  law  residence  is  something  other  than  domicil.  That 
it  is  competent  for  the  legislature  of  the  State  of  New  York  to  tax 
successions  from  residents  of  the  state,  irrespective  of  their  domicil, 
I  do  not  doubt  and  have  so  stated  before  in  Matter  of  Morgan,  96 
Misc.  Reports,  455.  If  a  person  whose  domicil  is  not  in  this  state 
voluntarily  enter  this  state,  and  actually  reside  here,  those  taking  in 
succession  from  her  have  no  valid  ground  of  complaint  if  she  has  been 
subjected  to  many  taxes  from  which  a  non-resident,  by  the  usage  of 
nations,  would  have  been  exempt.  Chapter  551,  Laws  of  1916,  recently 


RESIDENCE  FOE  PERSONAL  INCOME  TAXATION  201 

enacted,  attempts  to  prescribe  what  constitutes  a  residence  for  the 
purpose  of  the  Taxable  Transfer  Act.  Chapter  551,  Laws  of  1916, 
purports  to  amend  Section  243  of  the  Taxable  Transfer  Act  (Laws  of 
1909,  Chap.  62).  The  relevant  portion  of  Chapter  551,  Laws  of  1916, 
is  as  follows: 

"Section  243.  Definitions.  .  .  .  For  any  and  all  purposes  of  this 
article,  and  for  the  just  imposition  of  the  transfer  tax,  every  person 
shall  be  deemed  to  have  died  a  resident,  and  not  a  non-resident,  of  the 
State  of  New  York,  if  and  when  such  person  shall  have  dwelt  or  shall 
have  lodged  in  this  state  during  and  for  the  greater  part  of  any  period 
of  twelve  consecutive  months  in  the  twenty-four  months  next  preced- 
ing his  or  her  death;  and  also,  if  and  when  by  formal  written  instru- 
ment executed  within  one  year  prior  to  his  or  her  death  or  by  last 
will  he  or  she  shall  have  declared  himself  or  herself  to  be  a  resident 
or  a  citizen  of  this  state,  notwithstanding  that  from  time  to  time  dur- 
ing such  twenty-four  months  such  person  may  not  have  sojourned 
outside  of  this  state,  and  whether  or  not  such  person  may  or  may 
not  have  voted  or  have  been  entitled  to  vote  or  have  been  assessed  for 
taxes  in  this  state;  and  also  if  and  when  such  person  shall  have  been 
a  citizen  of  New  York  sojourning  outside  of  this  state.  The  burden 
of  proof  in  a  transfer  tax  proceeding  shall  be  upon  those  claiming 
exemption  by  reason  of  the  alleged  non-residence  of  the  deceased.  The 
wife  of  any  person  who  would  be  deemed  a  resident  under  this  section 
shall  also  be  deemed  a  resident  and  her  estate  subject  to  the  payment 
of  a  transfer  tax  as  herein  provided,  unless  said  wife  has  a  domicil 
separate  from  him." 

The  legislature  in  the  act  referred  to  in  the  above  case,  laid 
down  certain  qualifications  under  which  a  person  was  to  be  deemed 
a  resident  if  he  came  within  the  provisions  set  forth.  The  Court, 
however,  said  in  rendering  the  opinion  in  this  case : 

"I  cannot,  however,  agree  with  the  contention  of  the  state  comp- 
troller that  the  legislature  by  the  amendment  above  quoted  intended 
that  a  person  who  dwelt  or  lodged  here  for  a  period  of  six  months 
and  one  day  of  the  twenty-four  months  immediately  preceding  such 
person's  death  is  to  be  deemed  a  resident  of  this  state  for  the  purpose 
of  the  transfer  tax." 

Residence  under  Ohio  tax  law. — Under  a  similar  statute  to 
that  referred  to  in  the  above  case,  John  D.  Rockefeller,  a  former 
citizen  of  Cleveland,  Ohio,  moved  to  New  York,  establishing  there 
a  home,  a  residence  and  a  right  to  vote  which  he  exercised  in  New 


202  TAX   ON  PERSONAL  INCOMES 

York  City.  In  June,  1913,  he  returned  to  Ohio  where  he  retained 
a  home  and  where  it  was  his  custom  to  spend  the  summer  season. 
He  remained  there  with  his  family  after  the  tax  listing  day — Feb- 
ruary 3d,  1914,  when  under  the  laws  of  Ohio  he  was  prima  fade 
liable  for  a  personal  tax.  The  Court  held  in  that  case  that  not- 
withstanding his  stay  in  Ohio,  he  was  still  to  be  deemed  a  resident 
of  New  York  since  his  intention  to  return  to  New  York  was  of 
controlling  importance,  and  that  if  there  was  any  doubt  as  to  the 
meaning  of  the  tax  statute,  it  must  be  construed  and  the  doubt  re- 
solved in  favor  of  the  person  assessed.  People  ex  rel.  Rockefeller 
v.  O'Brien,  224  Fed.  Rep.  541. 

Residence  as  determined  in  personal  tax  cases  in  New  York. 

— Eesidence  for  the  purpose  of  taxation  in  the  State  of  New  York 
may  be  determined  from  the  facts  as  well  as  the  intention.  A 
mere  sojourning  in  a  place  does  not  constitute  residence  for  pur- 
poses of  taxation  (Frost  v.  Brisbin,  19  Wend  11).  The  Court  in 
the  latter  case  said  "there  must  be  a  settled,  fixed  abode,  and  the 
intention  to  remain  permanently  at  least  for  a  time,  for  business 
or  other  purposes,  to  constitute  a  residence  within  the  legal  mean- 
ing of  that  term. 

Jacobs,  in  the  Law  of  Domicile,  says:  "Residence  implies  an 
established  abode,  fixed  permanently  for  a  time,  for  business  or 
other  purposes,  although  there  may  be  an  intent  in  the  future  at 
some  time  or  other  to  return  to  the  original  domicile." 

Facts  determining  residence. — Nor  does  the  question  of  voting 
determine  the  residence  although  that  may  be  one  of  the  circum- 
stances upon  which  residence  for  purposes  of  taxation  may  be 
predicated  (In  Re  Crilly,  13  App.  Div.  247).  In  the  Crilly  case, 
a  person  hired  a  house  in  the  City  of  New  York  for  residence  while 
temporarily  engaged  in  business,  as  superintendent  of  the  business 
of  a  firm  in  the  City  of  New  York,  and  remained  in  the  city  on 
tax  day  although  he  alleged  that  for  the  past  fifteen  years  he  had 
been  a  resident  of  Pennsylvania  doing  business  in  the  City  of 
Philadelphia  and  paid  taxes  during  that  period  and  voted  there, 
and  although  these  facts  may  have  indicated  his  domicile  in  the 
State  of  Pennsylvania,  they  did  not  disprove  his  residence  for  the 


RESIDENCE  FOR  PERSONAL  INCOME  TAXATION  203 

purpose  of  taxation  in  New  York.  The  question  of  residence  is  not 
determined  upon  the  payment  of  personal  taxes,  irrespective  of 
circumstances  under  which  the  assessment  was  made,  and  where  it 
appears  that  a  person  assessed  by  the  City  of  New  York  went 
before  the  Tax  Commissioner  and  asserted  that  he  was  a  resident 
of  New  Jersey,  stating:  "I  live  some  of  my  time  in  the  City  of 
New  York  and  am  quite  willing  to  pay  something  for  the  main- 
tenance of  the  City,"  the  payment  of  the  tax  cannot  be  taken  to 
establish  residence  for  tax  purposes.  (People  ex  rel.  Strong  v. 
O'DonneU,  47  Misc.  226.) 

In  Bartlett  v.  City  of  New  York,  5  Sanford  44,  the  person  as- 
sessed had  a  home  in  Westchester  County,  where  he  lived  with  his 
family  for  more  than  half  the  year,  but  the  Court  held  that  that 
was  not  inconsistent  with  his  residence  in  the  City  of  New  York 
for  the  remainder  of  the  year  including  tax  day. 

In  Douglass  v.  Mayor,  2  Duer  110,  the  plaintiff  resided  in  the 
City  of  New  York  for  several  years  during  the  winter  and  spring, 
and  in  Flushing  in  the  summer  and  autumn.  Although  he  had 
two  residences,  the  court  held  that  he  was  liable  to  taxation  in  the 
place  where  he  resided  on  tax  day. 

The  mere  temporary  stay  and  rental  of  an  apartment  for  a  brief 
period  during  the  year  in  New  York  City,  does  not  establish  a 
residence  for  the  purpose  of  taxation  in  the  face  of  acts  and  state- 
ments showing  a  contrary  intention.  The  facts  in  each  case  must 
determine  the  liability  for  taxation.  (People  ex  rel.  Lord  v.  Feit- 
ner,  78  App.  Div.  287.) 

Presumption  as  to  residence. — The  presumption  as  to  the  con- 
tinuance of  residence  once  established,  is  covered  by  Section  8  of 
the  New  York  Tax  Law  which  provides  that  "when  a  person  shall 
have  acquired  a  residence  in  the  tax  district  and  shall  have  been 
taxed  therein,  such  residence  shall  be  presumed  to  continue  for  the 
purpose  of  taxation  until  he  shall  have  acquired  another  residence 
in  this  state  or  shall  have  removed  from  this  state. 

In  People  ex  rel.  Wright  v.  O'Rourke,  32  App.  Div.  66,  it  was 
held  that: 

"As  a  general  rule  a  person  does  not  gain  a  new  residence  except 
by  Borne  change  in  the  place  of  his  abode,  accompanied  by  an  intent 


204  TAX   ON   PERSONAL  INCOMES 

to  acquire  such  new  residence.  A  change  of  abode  without  such  intent, 
is  generally  insufficient,  and  a  general  intent  without  actual  change  ii 
equally  insufficient." 

In  People  ex  rel.  Bradley  Martin  v.  Feitner,  33  Misc.  358 ;  Aff'd 
60  App.  Div.  630,  it  was  held : 

"Where  a  person  does  not  renounce  his  citizenship  in  this  country 
and  continues  to  pay  personal  taxes  without  protest  for  a  number  of 
years,  the  mere  statement  that  he  has  changed  his  residence  to  a 
foreign  country  will  be  disallowed  on  the  facts  and  in  view  of  the 
statutory  presumption  contained  in  Section  8  of  the  Tax  Law,  that  a 
person's  residence  is  presumed  to  continue  until  he  acquires  another 
residence." 

There  appeared  in  the  above  case  to  be  no  change  in  the  habits 
or  domicile  of  the  person  assessed,  but  in  People  ex  rel.  Astor  v. 
Tax  Commissioners,  33  Misc.  347,  where  a  person  maintained  a  res- 
idence and  a  home  in  a  foreign  country  and  gave  up  his  house 
in  New  York,  the  mere  fact  that  he  had  paid  tax  assessments  in 
1896,  1897  and  1898  in  New  York,  raised  no  presumption  that  he 
was  a  resident. 

The  fact  that  a  person  spends  a  part  of  the  winter  months  in 
New  York,  cannot  be  said  to  establish  a  residence  here  where  he 
votes  in  Ehode  Island  and  pays  personal  taxes  there.  People  ex 
rel.  Lorillard  v.  Barker,  70  Hun.  397. 

Change  of  residence  to  another  state. — A  person  may  make  a 
change  of  residence  from  one  state  to  another  because  he  believes 
the  assessment  unjust  or  excessive  and  his  motives  for  making  the 
change  of  residence  are  immaterial.  People  ex  rel.  Gould  v.  Barker, 
14  Misc.  586. 

Change  of  residence  by  residents. — In  many  of  the  New  York 
cases  the  question  arose  as  to  the  determination  of  which  of  two 
places  in  different  parts  of  the  state,  should  be  deemed  the  legal 
residence  for  the  purpose  of  taxation,  and  where  the  fact  as  to  the 
change  of  residence  from  one  town  to  another  was  not  made  clear, 
the  courts  have  held  that  where  the  principal  business  was  located 
was  to  be  deemed  the  taxable  residence.  Matter  of  Nichols^  5 
1ST.  Y.,  page  64, 


CHAPTER   XXVI. 

PAYMENT  AND  INFORMATION  AT  THE  SOURCE — WITHHOLDING. 

What  kind  of  income  must  be  withheld. — The  first  paragraph 
of  Section  366  which  covers  deductions  or  payments  of  income  at 
the  source,  provides  for  the  amount  and  kind  of  income  to  be  with- 
held by  withholding  agent.  Under  paragraph  10,  Section  350  of 
the  law,  occurs  the  definition  of  withholding  agent,  as  follows: 

"The  words  withholding  agent  include  all  individuals,  corporations, 
associations  and  partnerships,  in  whatever  capacity  acting,  including 
lessees,  or  mortgagors  of  real  or  personal  property,  fiduciaries,  em- 
ployers, and  all  officers  and  employees  of  the  state,  or  of  any  municipal 
corporation  or  political  subdivision  of  the  state,  having  the  control, 
receipt,  custody,  disposal  or  payment  of  interest,  rent,  salaries,  wages, 
premiums,  annuities,  compensations,  remunerations,  emoluments  or 
other  fixed  or  determinable  annual  or  periodical  gains,  profits  and 
income  taxable  under  this  article." 

In  the  first  paragraph  of  Section  366,  we  find  explicit  directions 
for  the  kind  of  income  that  is  required  to  be  deducted  and  withheld 
at  the  source,  viz. : 

"Salaries,  wages,  commissions,  gratuities,  emoluments,  perquisites 
and  other  fixed  and  determinable  annual  or  periodical  compensation 
of  whatever  kind  and  in  whatever  form  paid  or  received,  earned  for 
personal  services  and  taxable  under  this  article." 

Eent,  interest,  annuities  and  premiums  are  not  mentioned  in  this 
paragraph,  nor  is  such  income  paid  for  personal  services. 

The  statutory  definition  of  a  withholding  agent  in  paragraph  10, 
Section  350,  is  somewhat  misleading  since  the  withholding  agent 
only  deducts  certain  kinds  of  income.  The  kinds  of  income  to  be 
deducted  are  specifically  set  forth  in  the  first  paragraph  of  Section 
366,  which  is  headed  "Information  and  Payment  at  the  Source." 
This  section  is  divided  into  five  paragraphs.  The  first  paragraph 

205 


206  TAX   ON  PERSONAL  INCOMES 

provides  for  the  kind  of  income  that  is  to  be  withheld  or  deducted 
at  the  source.  The  third  paragraph  provides  for  a  return  to  be 
made  by  withholding  agents  for  all  of  such  income  required  to  be 
deducted  under  the  first  paragraph.  The  second  paragraph  pro- 
vides for  the  return  of  complete  information  by  withholding  agents, 
of  all  interest,  rent,  salaries,  wages,  premiums,  annuities,  compen- 
sation, remuneration,  emoluments  or  other  fixed  or  determinable 
annual  or  periodical  gains,  profits  and  income  except  interest 
coupons  payable  to  bearer,  of  any  taxpayer  taxable  under  this  ar- 
ticle, of  $1,000  or  more.  The  fourth  and  fifth  paragraphs  include 
administrative  provisions  for  procedure  similar  to  those  in  the  fed- 
eral act,  in  connection  with  such  returns  by  the  withholding  agent 
or  by  the  recipient. 

Since  the  first  paragraph  of  Section  366  is  the  only  paragraph 
in  the  law  which  specifies  the  income  that  is  required  to  be  deducted 
and  withheld  at  the  source,  it  is  here  stated  in  full : 

"Sec.  366.  Information  and  payment  at  source.  Every  withhold- 
ing agent  shall  deduct  and  withhold  two  per  centum  from  all  salaries, 
wages,  commissions,  gratuities,  emoluments,  perquisites  and  other 
fixed  and  determinable  annual  or  periodical  compensation  of  whatever 
kind  and  in  whatever  form  paid  or  received,  earned  for  personal  serv- 
ices and  taxable  under  this  article,  of  which  he  shall  have  control, 
receipt,  custody,  disposal  or  payment,  if  the  amount  paid  or  received 
or  to  be  paid  or  received  in  any  taxable  year  on  account  of  any  indi- 
vidual equals  or  exceeds  one  thousand  dollars,  unless  there  shall  be 
filed  with  the  withholding  agent,  before  the  time  when  he  is  required 
to  make  return  and  payment  thereof,  a  certificate  in  such  form  as 
shall  be  prescribed  by  the  comptroller  to  the  effect  that  the  person 
entitled  to  such  salary,  wage,  commission,  gratuity,  emolument,  per- 
quisite or  other  compensation  is  a  resident  and  setting  forth  his  resi- 
dence address  within  the  state." 

Note:  The  form  of  certificate  is  given  in  the  Forms,  following  Part 
IV,  infra.} 

It  may  be  said  generally  that  only  net  income  paid  to  an  em- 
ployee for  salary,  wages  or  commissions  for  personal  service  shall 
be  withheld  where  it  exceeds  $1,000,  if  the  employee  resides  without 
the  state.  Rent  and  income  from  business  are  not  mentioned  in 
this  paragraph,  nor  is  this  class  of  income  paid  in  return  for  per- 


INFORMATION  AT  »OURCE — WITHHOLDING 

sonal  service.  Hence,  such,  income  is  not  required  to  be  deducted 
at  the  source.  Taxes  on  profits  made  by  a  partner  in  a  partnership 
doing  business  within  the  state  need  not  be  withheld,  nor  would 
it  seem  that  any  part  of  the  payments  made  on  account  of  such 
profits,  should  be  withheld,  whether  such  payments  be  made  at  a 
fixed  period  or  not. 

Interest  and  annuities  are  not  deducted  because  not  included  in 
the  gross  income  of  a  non-resident,  except  to  the  extent  to  which 
the  same  shall  be  part  of  a  business  carried  on  in  the  state. 

Under  paragraphs  1  and  3  of  Section  366,  the  tax  on  salaries, 
wages  and  compensation  paid  for  personal  service  are  to  be  deducted 
by  employers.  No  distinction  is  made  as  to  the  kind  of  employ- 
ment, whether  it  be  to  a  railroad  president  who  receives  $50,000  a 
year,  or  to  a  stenographer  who  receives  $1,500  per  year.  The  third 
paragraph  of  this  section  provides  for  the  return  of  all  deductions 
made  under  the  first  paragraph. 

The  final  sentence  of  paragraph  3,  provides  that 

"Every  such  individual  corporation  or  partnership  is  hereby  made 
liable  for  such  tax  and  is  hereby  indemnified  against  the  claims  and 
demands  of  any  individual,  corporation  or  partnership  for  the  amount 
of  any  payments  made  in  accordance  with  the  provisions  of  this  sec- 
tion." 

Amount  of  tax  to  be  deducted. — The  statute  requires  2%  to  be 
deducted  from  all  salaries,  wages,  commissions,  etc.,  where  it  equals 
or  exceeds  $1,000,  unless  the  recipient  of  the  income  is  a  resident 
and  files  a  certificate  to  this  effect.  The  tax  is  imposed,  at  a  graded 
rate  of  1,  2  and  3%  on  incomes  respectively  exceeding  $1,000, 
$10,000,  and  $50,000.  The  original  bill  introduced  in  the  legisla- 
ture called  for  a  flat  rate  of  2%  and  in  the  closing  days  of  the 
session,  the  tax  was  fixed  at  a  progressive  rate  of  1,  2  and  3%. 
Through  an  oversight,  however,  the  withholding  provision  in  the 
original  bill  was  retained  instead  of  a  deduction  of  1,  2  and  39fc, 
to  conform  to  the  tax  rate  in  Section  351. 

If  the  withholding  agent  only  returns  the  proper  amount  of  the 
tax  instead  of  the  2%  deduction  provided  in  Section  366,  it  is  not 
believed  that  any  penalty  can  attach  for  conforming  to  the  spirit, 


208  TAX   ON   PERSONAL   INCOMES 

if  not  the  letter  of  the  law.  On  the  other  hand,  the  deduction  of 
a  larger  tax  than  the  statute  evidently  intended,  may  be  an  illegal 
exaction  from  non-residents  in  the  state.  In  other  words,  if  a 
resident  of  New  Jersey  earns  a  salary  of  $20,000,  the  withholding 
agent  need  not  deduct  $400.  He  only  deducts  $100  for  the  first 
$10,000  and  $200  for  the  remainder — in  the  aggregate,  $300. 

Note:    See  Comptroller's  Regulations,  infra. 

Under  Section  366  the  comptroller  has  issued  the  following  reg- 
ulations : 

STATE  OF  NEW  YORK. 

OFFICE  OF  STATE  COMPTROLLER, 

ALBANY,   N.    Y. 

DEDUCTING   AND    WITHHOLDING    AT    SOURCE 

RULES    AND    REGULATIONS    OF    THE    STATE    COMP- 
TROLLER, IN  RELATION  TO  TAXES  IMPOSED  UPON 
AND  WITH  RESPECT  TO  INCOMES  BY  CHAPTER  627 
OF  THE  LAWS  OF  1919 


Foreword 

The  following  regulations,  articles  261  to  269,  relative  to  deducting 
and  withholding  at  source,  are  promulgated  in  advance  of  the  formu- 
lation of  a  complete  set  of  rules  and  regulations  because  of  the  imme- 
diate importance  of  the  subject. 

(Signed)     EUGENE  M.  TRAVIS, 
June  11,  1919  Comptroller. 

DEDUCTING  AND   WITHHOLDING  AT   SOURCE 

Art.  261.  Deducting  and  withholding  tax  at  source.  Under  the 
opinion  of  the  attorney -general  (Income  Tax  Letter  No.  1,  May  29, 
1919),  deducting  and  withholding  is  required  of  one  per  cent  (1%) 
on  the  first  $10,000  and  of  two  per  cent  (2%)  on  all  sums  in  excess 
of  $10,000  from  all  salaries,  wages,  commissions,  gratuities,  emolu- 
ments, perquisites  and  other  fixed  and  determinable  annual  or  period- 
ical compensation  earned  for  personal  services  in  a  business,  trade, 
profession  or  occupation  carried  on  within  the  state,  if  the  aggregate 
amount  thereof  in  any  calendar  year  on  account  of  any  individual 
equals  or  exceeds  $1,000,  unless  there  shall  be  filed  with  the  with- 
holding agent  a  certificate  of  residence,  on  Form  101,  to  the  effect  that 


INFORMATION  AT  SOURCE — WITHHOLDING  209 

the  recipient  is  a  resident  of  the  state  and  setting  forth  his  residence 
address  within  the  state. 

Art.  262.  Deducting  and  withholding  in  1919.  Withholding 
agents  shall  deduct  and  withhold,  as  set  forth  in  Article  1,  in  respect 
of  personal  service  compensation  paid  or  credited  to  the  payee  at  any 
time  on  or  after  January  1,  1919,  except  that  if  the  employee  left  the 
service  of  the  withholding  agent  prior  to  May  14,  1919  (the  date  of 
the  enactment  of  chapter  627  of  the  laws  of  1919),  and  was  fully  paid 
prior  to  that  date,  no  duty  or  obligation  in  respect  to  such  payments 
rests  on  the  withholding  agent,  unless  the  status  of  employer  and 
employee  is  again  created  during  1919  and  further  payments  of  com- 
pensation for  personal  services  are  made  or  credited  in  1919.  In  other 
words,  the  provisions  for  deducting  and  withholding  are  effective  from 
January  1,  1919,  except  as  stated  in  this  article. 

Art.  263.  Fixed  or  determinable  annual  or  periodical  income. 
Only  income  earned  for  personal  services  is  subject  to  deducting  and 
withholding.  The  statute  specifies  that  every  withholding  agent  shall 
deduct  from  all  salaries,  wages,  commissions,  gratuities,  emoluments 
and  perquisites.  But  other  kinds  of  personal  service  income  may  be 
included  if  fixed  or  determinable  annual  or  periodical.  Income  is  fixed 
when  it  is  to  be  paid  in  amounts  definitely  predetermined.  It  is  deter- 
minable whenever  there  is  a  basis  of  calculation  by  which  the  amount 
to  be  paid  may  be  ascertained.  The  income  need  not  be  paid  annually 
or  ai>  an  annual  rate.  It  may  be  paid  periodically.  The  word  "peri- 
odical" is  used  in  apposition  to  "annual"  and  means  from  time  to  time, 
whether  or  not  at  regular  intervals.  That  the  length  of  time  during 
which  the  payments  are  to  be  made  may  be  increased  or  diminished 
in  accordance  with  someone's  will  or  with  the  happening  of  an  event, 
does  not  make  the  payments  any  the  less  determinable  or  periodical. 

The  following  shall  be  deemed  to  be  fixed  and  determinable  annual 
or  periodical  compensation  within  the  meaning  of  section  360  of  the 
tax  law: 

Any  payment  made  by  way  of  salary,  wage,  commission,  gratuity, 
emolument,  perquisite  or  otherwise  for  personal  services  rendered,  if 
the  amount  thereof  shall  be 

(a)  determined  prior  to,  concurrent  with  or  subsequent  to  the  ren- 
dering of  the  service,  and  is 

(b)  based  on  personal  services  rendered  by  the  hour,  week,  month, 
year  or  other  period  of  time, 

whether  such  personal  service  consists  of 

(c)  the  performance  of  specified  or  unspecified  duties,  or  of 


TAX   ON   PERSONAL   INCOMES 

(d)  work  done  on   or   in  connection  with   one  or   more  of  certain 
articles  or  parts  thereof; 

irrespective  of  whether  payment  be  made 

(e)  in  cash, 

(f)  in  board  or  lodging,  or  both, 

(g)  in  the  stock  of  a  corporation, 

(h)   by  promissory  note  or  other  obligation,  or 
(i)   in  property,  service  or  otherwise. 

If  payment  shall  be  made  otherwise  than  in  cash,  it  shall  be  con- 
sidered and  treated  as  payment  in  cash  to  the  fair  market  value  (de- 
terminable  usually  by  understanding  or  agreement  existing  between 
the  payor  and  the  payee)  of  such  medium,  other  than  cash,  as  may  be 
employed. 

Fees  for  professional  services  are  not  subject  to  withholding  unless 
contracted  for  or  paid  on  an  annual  or  periodical  basis. 

Art.  264.  Year,  for  purposes  of  deducting  and  withholding.  De- 
ducting and  withholding  of  personal  service  compensation  by  with- 
holding agents  shall  be  on  the  basis  of  a  calendar  year,  irrespective  of 
the  basis  of  reporting  adopted  by  the  payee-taxpayer.  Personal  service 
compensation  shall  be  deemed  to  have  been  paid  by  the  withholding 
agent  and  received  by  the  payee-taxpayer  only  if  and  to  the  extent 
actually  paid  or  credited  to  the  payee  and  thus  made  reducible  to  pos- 
session by  him.  Commissions  and  all  other  forms  of  personal  service 
compensation  determined  and  paid  or  credited  to  a  payee-taxpayer 
after  the  close  of  a  calendar  year,  shall,  for  the  purpose  of  deducting 
and  withholding  the  tax  and  of  returning  information  with  respect 
thereto,  be  treated  as  payments  made  in  the  calendar  year  when  paid 
or  credited,  but  for  such  purposes  only.  The  approved  method  of 
accounting  employed  by  the  payee-taxpayer  shall  govern  in  so  far  as 
he  may  be  called  upon  to  account  for  such  payments  for  income  tax 
purposes. 

Art.  265.  Income  not  subject  to  deducting  and  withholding. 
Deducting  and  withholding  from  income  is  not  required  in  the  follow- 
ing cases: 

(a)  In  respect  of  personal  service  compensation  income  when  there 
shall  have  been  filed  with  the  withholding  agent  a  resident's 
certificate  on  Form  101,  to  the  effect  that  the  person  receiving 
the  compensation  is  a  resident  of  this  state  and  setting  forth 
his  residence  address  within  the  state. 

(b)  If  of  a  character  other  than  compensation  for  personal  services. 

(c)  Where  the  personal  services  are  rendered  entirely  without  the 
state,  by  a  non-resident,  whether  payment  be  made  from  within 


INFORMATION  AT  SOURCE — WITHHOLDING  211 

or  without  the  state,  irrespective  of  the  status  of  the  withhold- 
ing agent.  The  occasional  entry  into  the  state  of  a  non-resi- 
dent employee  who  performs  the  duties  for  which  he  is  em- 
ployed entirely  without  the  state  but  enters  the  state  for  the 
purpose  of  reporting,  receiving  instructions,  accounting,  etc., 
incidental  to  his  duties  without  the  state,  shall  not  be  deemed 
to  take  such  employee  out  of  the  class  of  those  rendering  their 
services  entirely  without  the  state. 

(d)  Where  the  personal  services  are  rendered  within  the  state,  if 
rendered  for,  and  delivery  of  payment  is  made  without  the 
state  by,  a  non-resident  individual  or  partnership  having  no 
office  or  place  of  business  or  paying  agent  within  the  state,  or 
a  foreign  corporation  that  ( 1 )  is  not  registered  in  New  York 
and  (2)  has  no  office  or  place  of  business  or  paying  agent 
within  the  state.  (Nothing  in  sub-paragraph  "d"  shall  be  con- 
strued to  relieve  the  recipient  from  liability  to  make  return 
and  pay  the  tax  on  such  income.) 

Art.  266.  Income  of  a  non-resident  for  services  performed 
partly  within  and  partly  without  the  state.  In  case  a  non-resident 
receives  compensation  for  personal  services  rendered  or  performed 
partly  within  and  partly  without  the  state,  the  withholding  agent 
shall  deduct  and  withhold  on  the  entire  amount  of  compensation,  as 
set  forth  in  Article  1,  unless  the  withholding  agent  files  with  the 
comptroller,  with  his  return  (Form  103)  of  sums  deducted  and  with- 
held, a  certificate  on  Form  102,  setting  forth 

( 1 )  that  the  employee  is  a  non-resident  ( stating  his  address )  ; 

(If  the  withholding  agent  has  not  personal  knowledge  of  the 
place  of  residence  of  the  employee,  he  may  state  it  upon  in- 
formation and  belief,  provided  he  submits  with  his  certificate 
the  affidavit  of  the  employee  stating  such  residence.) 

(2)  that  part  only  of  the  payments  made  were  for  services  per- 
formed within  the  state,  and 

(3)  the  amount  in  dollars  and  cents  of  such  part.     If  brought  into 
question,  the  burden  of  proof  will  be  on  the  withholding  agent  to  show 
that  no  greater  portion  than  that  set  forth  in  his  affidavit  of  the 
payments  made  was  for   services  performed  in  this  state. 

In  apportioning  such  income  of  a  non-resident,  the  following  rules 
shall  be  observed  by  the  withholding  agent: 

(a)  If  the  non-resident  is  a  salesman,  drummer,  agent  or  other 
employee  through  whose  services  receipts  or  remuneration 
inure  directly  to  the  employer,  the  deducting  and  withholding 
shall  attach  to  the  portion  of  the  entire  salary  which  the  vol- 


TAX   ON   PERSONAL  INCOMES 

ume  of  business  transacted  by  the  employee  within  the  state  of 
New  York  bears  to  the  total  volume  of  business  transacted 
within  and  without  the  state  by  such  employee. 

(b)  If  the  nature  of  the  employment  of  the  non-resident  is  such 
that   receipts   or    remuneration    for    services    rendered    do   not 
inure  directly  to  the  employer,  as  in  the  case  of  clerks,  book- 
keepers, laborers  or  other  like  classes  of  employees,  the  deduct- 
ing and  withholding  shall  attach  to  the  portion  of  the  personal 
service  compensation  income  of  such  employee  which  the  time 
employed  within  the  state  bears  to  the  time   employed  both 
within  and  without  the  state. 

(c)  If  it  is  not  possible  to  apportion  the  income  as  above  provided, 
because  of  the  peculiarities  of  the  service  of  the  employee,  the 
apportionment  shall  be  made  in  accordance  with  the  facts  and 
the  tax  deducted  and  withheld  accordingly.     In  such  a  case  a 
full  statement  of  the  facts  shall  be  made  to  the  comptroller. 

Art.  267.  Form  of  residence  certificate.  Form  101  shall  be  used 
by  residents  of  the  state  of  New  York  for  the  purpose  of  claiming  the 
benefit  of  such  residence  for  income  tax  purposes.  Withholding  agents 
shall  retain,  preserve  and  keep  available  for  examination  and  inspec- 
tion by  the  comptroller  or  his  authorized  representative  all  residence 
certificates  for  a  period  of  one  year  next  following  the  close  of  the 
calendar  year  for  which  such  certificates  shall  have  been  given.  Blanks 
(Form  101)  will  be  furnished  by  the  comptroller  on  the  application 
of  withholding  agents.  Withholding  agents  may,  if  they  choose  to 
do  so,  use  blanks  acquired  from  other  sources,  provided,  however,  that 
the  form  and  wording  thereof  shall  comply  exactly  with  Form  101. 

Art.  268.  Revocation  and  renewal  of  residence  certificates.  An 
employee  who  has  filed  a  certificate  of  residence  on  Form  101,  and 
who  thereafter  changes  his  residence,  shall  notify  his  employer  of  such 
change.  Any  employer  who  has  reasonable  ground  for  believing  that 
may  revoke  the  certificate  of  residence  theretofore  filed  by  such  em- 
an  employee  has  changed  his  residence,  after  notice  to  the  employee, 
and,  in  default  of  a  new  certificate  of  residence,  shall  deduct  and  with- 
hold from  the  compensation  of  such  employee  for  the  entire  calendar 
year,  as  provided  in  Article  I. 

A  certificate  of  residence  shall  be  effective  only  for  the  calendar 
year  in  which  it  is  filed. 

Art.  269.  Deducting  and  withholding  where  residence  is  estab- 
lished. When  a  withholding  agent  shall  have  deducted  and  withheld 
from  the  personal  service  compensation  of  an  employee  and  such 
employee  shall  thereafter,  before  return  of  the  amount  so  withheld 


INFORMATION  AT  iOUECE — WITHHOLDING 

is  made  by  the  withholding  agent  but  not  later  than  March  15  in  the 
year  following,  file  with  the  withholding  agent  a  residence  certificate 
on  Form  101,  the  withholding  agent  shall  thereupon  pay  over  to 
the  employee  the  entire  amount  of  income  so  deducted  and  withheld 
for  such  calendar  year. 

Pursuant  to  the  authority  conferred  by  chapter  627  of  the  laws  of 
1919,  the  foregoing  regulations  (Articles  Numbered  261-269  inclu- 
sive) in  relation  to  "Deducting  and  Withholding  at  Source,"  are 
hereby  made  and  promulgated. 

(Signed)     EUGENE  M.  TRAVIS, 

Comptroller. 
Albany,  N.  Y., 

June  11,  1919. 

Opinions  of  Attorney  General  on  Salaries  to  be  Taxed  and  on 
withholding. — Attention  is  called  to  the  following: 

Letter  No.  2,  of  May  29,  1919,  as  to  sources  within  the  State,  hold- 
ing that  it  includes  rent  for  property,  and  profits  for  commerce  car- 
ried on,  within  the  state.  Whether  earnings  or  salary  paid  to  a  non- 
resident are  from  "sources  within  the  state"  depend  on  the  work  done, 
rather  than  the  person  paying  it.  Services  performed  without  the 
state  are  not  taxable. 

Letters  No.  3  and  No.  4,  dated  May  29th,  and  June  2,  respectively, 
refer  to  withholding  agents  and  are  covered  in  substance  by  the  above 
regulations  of  the  Comptroller. 

Wages  of  mariners.— -Attorney  General's  letter  No.  7,  dated  June 
12,  1919,  holds  that  a  mariner's  wages  derived  from  a  vessel  owned 
by  a  resident  of  the  state  is  from  a  source  within  the  state,  even  if 
the  vessel  never  reaches  a  New  York  port. 

U.  S.  railroad  employee's  wages  exempt.— Attorney  General's 
letter  No.  6,  dated  June  10,  1919,  holds  that  the  gross  income  of 
employees  of  railroads,  telegraphs,  telephones  and  cables  under  fed- 
eral control  are  not  taxable  "for  the  time  the  lines  might  remain  in 
the  control  of  the  United  States." 


CHAPTEE    XXVII. 

EXEMPTION  OF  INTANGIBLE  PERSONAL  PROPERTY  FROM  LOCAL 

TAXATION. 

Section  352  of  the  Personal  Income  Tax  Law  provides:  "The 
taxes  imposed  by  this  article  are  in  addition  to  all  other  taxes 
imposed  by  law,  except  that  money  on  hand,  on  deposit  or  at  inter- 
est, bonds,  notes  and  choses  in  action  and  shares  of  stock  in  cor- 
porations other  than  banks  and  banking  associations,  owned  by 
any  individual  or  constituting  a  part  of  a  trust  or  estate  subject 
to  the  income  tax  imposed  by  this  article,  and  from  which  any 
income  is  derived,  shall  not  after  July  thirty-first,  nineteen  hun- 
dred and  nineteen,  be  included  in  the  valuation  of  the  personal 
property  included  in  the  assessment-rolls  of  the  several  tax  dis- 
tricts, villages,  school  districts  and  special  tax  districts  of  the 
state/' 

It  was  evidently  the  intention  of  the  framers  of  the  new  Per- 
sonal Income  Tax  Law  to  exclude  intangible  property  from  local 
taxation.  That  would  be  in  accord  with  the  legislative  intent  to 
exempt  corporations  from  taxation  on  personal  property  for  local 
purposes  in  the  act  which  was  passed  in  1917,  Sections  210  and 
219-j,  Article  9-a.  It  was  finally  decided  only  to  exempt  intangible 
property  and  to  leave  the  tangible  property  for  taxation  by  the 
local  assessors.  In  order  that  there  might  be  no  question  as  to  the 
meaning  of  intangible  property,  the  present  act  specifically  de- 
scribes by  name,  the  character  of  intangible  property  to  be  ex- 
empted. Statutory  provisions  have  been  nullified  in  the  past  by 
holding  money,  mortgages  or  securities  as  tangible  property,  al- 
though generally  deemed  intangible.  In  the  closing  hours  of  the 
legislative  session,  the  words  "and  from  which  any  income  is  de- 
rived" were  inserted  after  the  enumeration  of  the  classes  of  in- 

214 


EXEMPTION  OF  PERSONAL  PROPERTY  215 

tangible  property  to  be  exempted,  thus  injecting  an  element  of 
confusion  into  the  statute. 

Money  on  hand  and  choses  in  action  represented  by  outstanding 
accounts  when  used  in  a  going  business  yield  an  income  although 
no  interest  may  be  derived  from  either  class,  but  if  the  property 
is  used  productively,  there  is  a  presumption  that  income  will  be 
derived  therefrom.  (McLean  v.  Julian  Electric  Co.,  28  Abb.  N.  C. 
349.) 

In  the  same  way  it  may  be  said  that  notes  taken  in  payment  of 
accounts  in  a  going  business,  yield  an  income  whether  they  bear 
interest,  or  not.  The  business  in  which  these  various  kinds  of 
intangible  property  were  used,  is  undoubtedly  productive  in  char- 
acter, but  whether  it  is  income  producing,  is  another  matter.  Of 
course,  in  the  case  of  money  on  hand  or  on  deposit  not  used  in  a 
productive  business,  no  such  question  will  arise.  As  to  shares  of 
stock  in  corporations  other  than  banks  and  banking  associations, 
which  pays  no  dividends,  the  question  occurs  which  receives 
some  significance  from  the  provision  of  the  law  imposing  a  tax  on 
business  corporations.  Section  219-j  provided  that  "after  this 
article  takes  effect,  corporations  taxable  thereunder  shall  not  be 
assessed  on  any  personal  property  or  capital  stock  as  provided  for 
in  Section  12  of  this  chapter." 

The  words  "corporations  taxable  thereunder"  refer  to  corpora- 
tions taxable  under  Section  9-a  and  it  exempted  all  of  such  cor- 
porations from  taxation  on  their  personal  property  (or  capital 
stock),  upon  which  they  have  heretofore  paid  the  tax  either  under 
Section  12  in  the  case  of  domestic  corporations,  or  under  Section  7 
in  the  case  of  foreign  corporations. 

There  had  up  to  that  time  been  effective  the  following  provision 
in  Subdivision  16,  Section  4  of  the  tax  law,  under  the  head  of 
"Exemption  from  Taxation,"  viz. :  "Owner  or  holder  of  stock  of 
an  incorporated  company  liable  to  taxation  on  its  capital  shall  not 
be  taxed  as  an  individual  for  such  stock." 

Since  a  business  corporation  was  therefore  no  longer  "liable  to 
taxation  on  its  capital,"  the  exemption  to  the  individual  owner  of 
the  stock  may  be  said  to  have  been  repealed  and  the  present  pro- 


916 


TAX   ON   PERSONAL  INCOMES 


vision  exempting  such  stock  "from  which  any  income  is  derived" 
by  implication  makes  stock  paying  no  dividends  liable  to  taxation. 
This  same  rule  would  have  seemed  to  apply  equally  to  residents 
and  to  non-residents,  although  non-residents  are  in  no  event  taxed 
on  the  income  from  "annuities,  interest  on  bank  deposits,  interest 
on  bonds,  notes  or  other  interest-bearing  obligations  or  dividends 
from  corporations,  except  to  the  extent  to  which  the  same  should 
be  a  part  of  income  from  any  business,  trade,  profession  or  oc- 
cupation carried  on  in  this  state,  subject  to  taxation  under  this  ar- 
ticle/' 

Opinion  of  Attorney  General  on  income  from  mortgages, 
Etc. — Tax  letter  No.  8  dated  June  19,  1919,  holds  that  the  income 
from  mortgages  and  secured  debts,  not  being  specifically  exempted 
as  is  the  income  from  "investments"  remains  subject  to  the  income 
tax  and  may  not  be  excluded  in  the  computation  of  gross  income. 


CHAPTER  XXVIII 
ESTATES  AND  TRUSTS. 

Estates  and  Trusts. — The  wording  and  the  application  of  the 
New  York  State  Act  differs  from  that  of  the  federal  law  because 
of  the  difference  made  in  the  State  law  between  taxpayers  who  are 
residents  and  those  "other  than  residents/'  Those  who  drew  the 
State  law  avoided  skillfully  a  difficulty  by  which  the  drafters  of 
the  federal  act  were  not  hampered.  On  the  face  of  the  state  law 
there  is  no  attempt  to  extend  the  taxing  power  of  the  state  over 
persons  not  under  its  jurisdiction  as  to*  income  having  neither 
origin,  situg  nor  destination  within  this  state.  This  clear  intent  is 
carried  out  and  marks  one  of  the  few  differences  in  the  literal  text 
of  the  two  statutes. 

"Net  income"  of  an  estate  or  trust.  Exemptions  and  deduc- 
tions.— To  each  of  the  four  separate  subdivisions  as  to  which  the 
state  law  follows  the  literal  text  of  the  federal  law  as  to  imposing  a 
tax  on  the  income  of  estates  (meaning  estates  of  decedents)  and  of 
any  kind  of  property  held  in  trust  there  is  applied  the  same  excep- 
tion or  exclusion  which  is  provided  for  individuals  who  are  not 
residents  of  the  State.  The  exception  appears  twice  in  substantially 
identical  language,  first  at  the  end  of  subd.  3  of  section  365,  and 
again  at  the  end  of  subd.  4  of  the  same  section. 

The  exception  or  exclusion  reads  as  follows : 

In  such  cases,  the  estate  or  trust  shall  be  allowed  the  same  ex- 
emptions as  are  allowed  to  single  persons  under  section  362,  and 
in  such  cases  an  estate  or  trust  created  ~by  a,  person  not  a  resident 
and  an  estate  of  a  person  not  a-  resident  shall  be  subject  to  tax  only 
to  the  extent  to  which  individuals  other  than  residents  are  liable 
under  section  359,  subd.  3. 

The  provision  of  Section  359  is  as  follows : 

217 


218  TAX   ON   PERSONAL  INCOMES 

In  the  case  of  taxpayers  other  than  residents,  gross  income  in- 
cludes only  gross  income  from  sources  within  the  state,  but  shall 
not  include  annuities,  interest  on  bank  deposits,  interest  on  bonds, 
notes  or  other  interest  bearing  obligations  or  dividends  from  cor- 
porations, except  to  the  extent  to  which-  the  same  shall  be  a  part 
of  income  from  any  business,  trade,  or  occupation  carried  on  in  this 
state  subject  to  taxation  under  this  article. 

It  should  be  noted  in  this  connection  that  as  to  trusts  and  estates 
receiving  income  under  the  first  paragraph  of  Section  365,  sub- 
divisions (a),  (b)  and  (c),  viz.,  during  the  period  of  administra- 
tion or  settlement,  for  interest  accumulated  in  trust,  for  the  benefit 
of  unascertained  persons,  or  persons  with  contingent  interest,  or 
for  future  distribution,  that  those  not  resident  are  to  receive  the 
same  exemptions  as  resident  single  persons,  i.  e.,  $1,000.  For 
guidance  as  to  income  distributed  to  beneficiaries  under  subdivision 
(d)  of  the  same  paragraph,  we  may  turn  to  paragraph  4  and  also 
to  the  directions  imposed  on  fiduciaries  in  Section  369,  which  in 
effect  gives  the  beneficiary  a  deduction  of  $1,000,  if  single,  and 
$2,000,  if  married,  subject  nevertheless  to  the  clause  as  to  the 
amount  of  income  taxable  to  a  taxpayer  other  than  a  resident,  in 
the  last  part  of  paragraph  4,  Section  365,  and  also  subject  to  the 
intendment  in  Section  362,  that  the  personal  exemptions  in  this 
case  apply  only  to  resident  taxpayers. 

In  addition  to  the  deductions  allowed  to  individuals  which  are 
allowed  to  estates  and  trusts  under  the  provisions  quoted  in  full 
above,  there  is  also  deducted  under  Section  365  subd.  2  income  set 
aside  for  the  United  States,  a  state,  territory,  or  political  division 
of  the  United  States,  the  District  of  Columbia,  and  corporations 
the  purposes  of  which  are  religious,  charitable,  scientific  or  edu- 
cational and  societies  for  the  prevention  of  cruelty  to  children  or  to 
animals,  when  no  part  of  the  income  inures  to  the  benefit  of  any 
private  stockholder  or  individual. 

The  state  statute,  like  the  federal  act,  taxes  the  incomes  of  de- 
cedent's estates  as  they  accrue  during  administration,  income  of 
trusts  accumulating  for  persons  not  born,  or  not  ascertained,  or 
whose  identity  is  to  be  fixed  by  a  contingency;  income  held  for 
future  distribution  and  income  of  trusts  distributable  periodically. 


ESTATES  AND  TRUSTS  219 

The  income  of  an  infant  collected  by  a  guardian  is  the  subject  of 
a  specific  separate  clause,  meant  to  cover  the  case  when  he  holds 
it,  and  also  when  he  is  to  distribute  it  under  the  court's  direction. 

Non-resident  estates  and  trusts. — The  essential  feature  of  the 
state  statute  is  that  the  provisions  as  to  taxing  incomes  of  estates 
and  trusts,  reduce, — other  than  resident, — to  a  very  modest  re- 
siduum of  practical  enforcibility.  The  clear  intent  is  to  reach  with 
the  income  tax  levy  only  such  revenues  of  trusts  and  decedent's 
estates  as  are  derived  from  carrying  on  a  trade  or  business  within 
the  State  of  New  York.  That  is  because  annuities  and  interest 
receipts  of  all  kinds,  speaking  generally,  are  excluded  from  the 
operation  of  the  tax  on  persons,  estates  and  trusts  other  than  res- 
idents (subd.  3,  §  359;  subd.  3,  §  365),  and  because  also  it  is 
hardly  possible  to  conceive  of  a  trustee,  executor,  or  administrator 
as  carrying  on  or  even  continuing  within  the  state  a  profession  or 
a  personal  occupation.  Practically  then,  the  question  of  the  liabil- 
ity of  a  non-resident  decedent's  estate  or  a  trustee  not  a  resident 
of  the  State  to  pay  the  State  income  tax  will  arise  only  in  instances 
where  an  executor  exercises  power  given  him  by  a  will  to  continue 
in  this  State  a  trade  or  business  in  which  the  decedent  was  engaged 
before  his  death,  or  where  one  in  control  of  a  business,  sees  fit  to 
put  it  in  the  hands  of  a  trustee.  An  administrator  who  continues 
the  trade,  business  or  occupation  of  his  decedent,  does  so  at  his 
own  risk,  and  on  his  own  account  in  so  far  as  liability  to  pay  the 
state  income  tax  is  concerned.  That  is  an  indisputable  inference 
from  familiar  principles  of  substantive  law. 

Exception  as  to  sums  invested  in  business. — One  exception 
ought  to  be  noted  from  the  expression  of  a  general  intention  to 
exclude  accruals  of  interest  from  the  operation  of  the  state  income 
tax  levy  as  to  persons,  estates  or  trusts  other  than  those  resident  in 
the  state,  whether  it  be  from  bank  deposits,  bonds,  notes  or  deben- 
tures, or  corporation  dividends.  If  the  interest  accrued  be  part  of 
the  income  from  a  trade  or  business  carried  on  in  the  state  it  is 
taxable  against  an  estate  or  a  trust  not  a  resident.  The  meaning 
or  application  of  this  will  no  doubt  come  up  for  discussion  and 


220  TAX   ON   PERSONAL   INCOMES 

decision  in  relation  to  money  left  invested  in  a  business  by  an 
executor,  trustee,  administrator,  or  guardian. 

Some  interesting  questions  may  grow  out  of  the  form  in  which 
the  fund  is  carried  on  the  books  of  the  business  in  question,  i.  e., 
whether  as  a  loan  to  the  business  or  in  the  form  of  a  contribution 
to  the  capital  which  is  still  employed  in  the  business  after  notice 
given  of  a  future  withdrawal.  In  the  latter  case,  it  might  be  a 
puzzle  whether  to  call  the  earnings  of  the  fund  interest  or  profits, 
but  in  either  event  it  would,  according  to  the  letter  and  the  intent 
of  the  law,  be  taxable. 

Executor's  or  trustees  domicile  no  longer  controlling. — The 
form  in  which  the  state  statute  has  been  cast  tends  at  least  to 
render  academic  and  immaterial  rules  evolved  in  the  past  as  to 
determining  jurisdiction  over  a  decedent's  estate  or  over  a  trust 
estate  by  the  location  of  the  fiduciary's  residence  or  by  the  sitiLS 
of  personal  assets  either  for  safe-keeping  or  for  investment  or  for 
any  other  purpose,  permanent  or  casual.  The  legislative  intent  is 
put  clearly  at  the  end  of  the  third  subdivision  of  Section  359  of 
the  State  Law,  the  last  of  ten  important  clauses  into  which  the 
section  is  divided.  As  to  estates,  trusts,  and  infants'  incomes  held 
by  guardians,  the  intention  is  expressed  twice  in  Section  365  to 
limit  the  levy  on  non-residents  to  incomes  derived  from  business 
carried  on  in  New  York. 

The  old  maxim,  mobilia  personam  sequuntur,  and  the  distinc- 
tions between  residence  and  domicile,  upon  the  exposition  of  which 
much  judicial  learning  has  been  lavished,  as  varying  states  of  the 
facts  have  arisen,  need  not  vex  the  administration  of  the  State 
Income  Tax  Law  as  to  the  tax  on  the  income  of  trusts  and  estates, 
if  the  intent,  once  expressed  in  the  statute  be  kept  to  the  fore,  that 
the  only  income  sought  to  be  taxed  is  that  derived  from  a  business 
carried  on  in  this  State. 

The  suggestion  that  individuals  may  "die  technically  in  New 
Jersey"  in  order  that  their  estates  escape  the  income  tax  levy  in 
New  York  will  not  be  pushed  to  the  point  of  ferryboat  trips  to  the 
Jersey  shore  in  rigore  mortis.  As  a  practical  matter,  the  state 


ESTATES  AND  TRUSTS  221 

law  leaves  taxpayers,  whether  they  be  residents  or  not,  at  liberty  to 
die.  where  they  please.  If  they  had  been  residents  prior  to  death, 
their  estates  will  be  subject  to  income  tax  on  annuities,  on  bond 
and  note  interest,  and  interest  accruing  from  any  obligation  to  pay 
money  except  securities  expressly  exempted,  as  well  as  on  every 
other  variety  of  income  not  exempted,  including  business  revenues. 
If  they  are  not  residents,  the  levy  is  limited  to  income  receipts  from 
business  carried  on  in  the  state. 

The  special  provisions  of  the  law  as  to  estates  and  trusts  were 
needed  to  make  it  clear  that  the  income  derived  from  a  decedent's 
property  is  not  made  immune  from  levy  during  the  time  needed 
for  administration,  settlement  and  distribution  of  the  estate.  They 
were  also  necessary  to  the  clear  or  unambiguous  expression  of  the 
intent  to  levy  on  the  income  in  addition  to  the  succession  or  inher- 
itance taxes  which  have  been  collected  during  many  years,  out  of 
the  principal  funds  passing  to  beneficiaries. 

The  "fiduciary,"  which  the  law  defines  so  as  to  cover  specifically 
guardians,  executors,  administrators,  and  trustees  as  well  as  gen- 
erally any  person  or  corporation  acting  in  a  fiduciary  capacity  for 
any  person  or  estate,  must  make  the  return  and  pay  the  tax.  In 
one  case  only  is  the  fiduciary  not  to  pay  the  tax,  and  that  is  in  a 
case  where  any  income  has  during  the  administration  or  settle- 
ment period  been  paid  or  credited  to  any  heir,  legatee,  or  benefi- 
ciary. In  such  a  case,  it  is  the  apparent  intent  of  the  law, — al- 
though the  application  is  far  from  clear,  that  the  beneficiary  shall 
personally  pay  the  tax. 


CHAPTER   XXIX. 

COMPARATIVE    TABLE    SHOWING    PARALLEL    SECTIONS 
IN  STATE  AND  FEDERAL  INCOME  TAX  LAWS. 


State  Law 
350-1     new 

2     same    as,     excepting    new: 

"or  whose  income  is  in 
whole  or  in  part  subject  to 
a  tax  imposed  by  this  ar- 
ticle, and  does  not  include 
corporations." 

3  same  as 

4  same  as 

5  adds  after  "any  person"  the 
words:  "whether  individual 
or  corporate." 

6  adds  part  beginning:    "the 
term  received.  .  .  ." 

new. 


7 

8 

9 

10 


1st  half  new. 

wording  new — taken  partly 

from: 

351  new. 

352  new. 

353  same  as 

excepting  Jan.  1st,  1919, 
substituted  for  March  1st, 
1913. 

354  same  aa 

355  same  as 

356  same     as,     excepting     comp- 

troller for  commissioner, 
and  adds  last  clause:  "and 
conforming  so  far  as  may 
be  to  forms  and  methods 
prescribed  by  U.  S.  Com- 
missioner. 


Federal  Law 
in  section  i. 


in  section  i. 
in  section  200. 
in  section  200. 


in  section  200. 


section  201,  in  part, 
in  section  i. 
section  221 -a. 


section  202 -a. 


section  202-b,  1st  sentence, 
section  202-b,    2nd     sentence 

changed  dates, 
section  203. 


222 


COMPARATIVE  TABLE 


223 


357         analogous  to 
358-  1     same    as,    excepting    comp- 
troller for  commissioner. 

358-  2     same    as,    excepting    comp- 

troller  for  commissioner. 

359-  1     same  as,  excepting  salaries 

of  Federal   officials  not  in- 
cluded. 
359-2,  a     same  as,  excepting  adds: 

"and  contracts" 
359-2,  b,  c     same  as 
359-2,  d,  excepting      new:      "obliga- 
tions   of    State    of     New 
York,"    and    does   not    in- 
clude 

1.  "obligations       of       all 
States,  etc." 

2.  provision  for  statement 
of   ownership    of   bonds 

359-2,e     same    as,    excepting    new: 
"or  through  War  Risk  In- 
surance Act.  .  .  ." 
859-2,  f    new 
359-2,  g    new 

359, 3  same  as,  excepting  "State" 
for  "United  States,"  "tax- 
payer other  than  a  resident" 
substituted  for  "non-resi- 
dent alien  individual,"  and 
differences  in  wording  of 
latter  part. 
360,  1  same  as 

360,  2  same  as,  excepting  new:  "in 
the  case  of  a  resident  such 
a  proportion  of  the  total, 
etc."  "not  a  resident"  for 
"non-resident  alien  indi- 
vidual" "state"  for  "United 
States" 

360,  3  same  as,  excepting  "or 
third,"  "by  the  authority 
of  any  foreign  government," 
without  the  federal  distinc- 
tion as  to  residence. 
360,  4  same  as 

360,  5  same  as,  excepting  "tax- 
payer other  than  a  resident 
of  the  state"  substituted 


section  2i2-a. 
section  2i2-b. 

section  2i2-b,   last   sentence, 
section  213-3. 

section  213,  b-i. 

section  213,  b-2,  3. 
section  213,  b-4. 


section  213,  b-6. 


section  213-0. 


section  214,  a-i. 
section  214,  a-2. 


section  214,  a-3. 


section  214,  a-4. 
section  214,  a-5- 


224 


TAX   ON   PERSONAL   INCOMES 


for  "non-resident  alien  in- 
dividual," and  "State"  for 
"U.  S." 

360,  6  same  as,  excepting  same 
substitution  as  in  a-5 

360,  7     same  as 

360,  8     same  as 

360,  9  same  as,  excepting:  Jan. 
1st,  1919,  for  March  1st, 
1913,  and  comptroller  for 
commissioner,  etc. 

360-10  same  as,  excepting:  "incor- 
porated by  or  associa- 
tions" .  .  .  under  the  laws 
of  this  state;  "comptroller" 
substituted  for  "commis- 
sioner, with  approval  of  the 
secretary." 

"Taxpayer  other  than  a 
resident"  substituted  for 
"non-resident  alien" 

360-11  same  as,  excepting  "tax- 
payer other  than  a  resi- 
dent" substituted  for  "non- 
resident alien  individual," 
"state  for  United  States," 
comptroller  for  commis- 
sioner. 

361-  1     same  as 

361-  2     same  as 

361-  3     same  as 

361-  4     same  as 

362  new:    "to  any  resident  tax- 
payer." 

362-  1     same  as 
362-  2     same  as 
362-  3     new 

363  new 

364  same    as,     excepting    new: 
"Taxpayers  who    are   mem- 
bers   of    partnerships — may 
be  required  to  make  a  re- 
turn stating  gross  income," 
etc.,   and   "personal  exemp- 
tion  allowed    only   to   indi- 
vidual partners." 

365  same     as,     excepting    new: 
"and   in  such  cases  an  es- 


section  214,  a-6. 

section  214,  3-7. 
section  214,  a-8. 
section  214,  a-io. 


section  214,  a-n. 


section  2i4-b. 


section  215-3. 

section  2i5-b. 

section  215-0. 

section  2i5-d. 


section  2i6-c. 
section  2i6-d. 


section  218-3  and 


section  219. 


COMPARATIVE   TABLE 


225 


tate  or  trust  created  by  a 

person  not  a  resident.  .  .  ." 

366-  1     new,  but  see  section  221. 

366-  2     new 
366-  3     same  as,  excepting:  "March       section  221-c. 

15th"  for  "March  1st"  and 

new:    "shall    at    the    same 

time    pay    the    tax    to    the 

comptroller." 

366-  4     same  as  section  22i-d. 

366-  5     same  as  section  22i-e. 

367  same     as,     excepting     new:       section  223. 
"taxpayers  other  than  res- 
idents shall  not  be  entitled 

to  deductions  unless  .  .  ." 
etc.,  "taxpayer"  substituted 
for  "individual." 

368  same  as  section  224. 

369  same    as,     excepting    "tax-       section  225. 
payer"  substituted  for  "in- 
dividual," "comptroller"  for 
"commissioner." 

370  same  as,   excepting   "comp-      section  226. 
troller"       substituted      for 
"commissioner." 

371  new. 

372  new. 

373  new. 

374  new. 

375  new. 

376  new. 

377  new. 

378  new. 

379  new. 

380  new. 

381  new. 

382  new. 

383  new. 

384  new. 

385  new. 


CHAPTER  XXX 

Text  of  the  Individual  Income  Tax  Law  of  New  York  State 
together  with  Treasury  Decisions  and  Regulations  per- 
taining to  similar  provisions  of  the  Federal  Income  Tax 
Law. 

(Note:  Words  added  or  substituted  or  other  instances  where  the  State 
Law  differs  from  the  Federal,  are  denoted  by  italics.  The  italics  are  the 
author's.  Where  the  date  March  1st,  1913,  or  similar  dates,  occur  in  the 
T.  D.'s  and  Regulations,  one  may  substitute,  for  state  purposes,  the  date 
January  1st,  1919.  In  general  where  the  Federal  Law  refers  to  "non-resi- 
dent alien  individual"  the  State  Law  employs  the  phrase  "taxpayer  other 
than  a  resident  of  the  state"  There  have  been  included  in  the  annotations 
some  T.  D.'s  and  Regulations  which  in  terms  apply  only  to  corporations, 
but  which,  it  is  believed,  will  have  some  illustrative  force  (For  compari- 
son betioeen  State  and  Federal  Law  see  table  preceding  this  chapter.) 

Definitions. 

SEC.  350.  Definitions.  For  the  purpose  of  this  article  and  un- 
less otherwise  required  by  the  context : 

Comptroller  defined. 

1.  The  word  "comptroller"  means  the  state  comptroller. 
(Source:  New.) 

Taxpayer  defined. 

2.  The  word  "taxpayer"  includes  any  person,  trust  or  estate  sub- 
ject to  a  tax  imposed  by  this  article,  or  whose  income  is  in  whole 
or  in  part  subject  to  a  tax  imposed  by  this  article,  and  does  not 
include  corporations. 

(Source:  Fed.  Rev.  Act  1918,   §    1.) 

Under  the  federal  law  a  taxpayer  is  any  person,  trust  or  estate  subject 
to  tax,  and  three  chief  classes  of  persons  are  recognized,  to  wit:  individuals, 
partnerships  and  corporations.  Corporations  include  associations,  joint 
stock  companies  and  insurance  companies,  but  not  partnerships  properly 
BO  called.  (Reg.  45,  Rev.  Art.  1501.) 

226 


§  350  N.  T.  ACT  AND  U.  S.  REGULATIONS  227 

The  state  law  expressly  excludes  corporations  from  the  definition  of  tax- 
payer under  this  article. 

Military  and  naval  forces  defined. 

3.  The  words  "military  or  naval  forces  of  the  United  States" 
include  the  marine  corps,  the  coast  guard,  the  army  nurse  corps, 
female,  and  the  navy  nurse  corps,  female,  but  this  shall  not  be 
deemed  to   exclude  other  units   otherwise  included  within   such 
words. 

(Source:  Fed.  Rev.  Act  1918,  §  1.) 

Taxable  year  and  fiscal  year  defined. 

4.  The  words  "taxable  year"  mean  the  calendar  year,  or  the  fiscal 
year  ending  during  such  calendar  year,  upon  the  basis  of  which  the 
net  income  is  computed  under  this  article.    The  words  "fiscal  year" 
mean  an  accounting  period  of  twelve  months,  ending  on  the  last 
day  of  any  month  other  than  December. 

(Source:  Fed.  Rev.  Act  1918,  §  200.) 

The  return  of  a  taxpayer  is  made  and  his  income  computed  for  his  tax- 
able year,  which  may  be  either  the  calendar  year  or  his  fiscal  year.  No 
fiscal  year  will,  however,  be  recognized  unless  before  its  close  it  was  defi- 
nitely established  as  an  accounting  period  by  the  taxpayer,  and  the  books 
of  such  taxpayer  were  kept  in  accordance  therewith.  If  a  taxpayer  has 
an  accounting  period,  which  is  a  fiscal  year  within  the  meaning  of  the 
statute,  he  must  make  his  return  on  that  basis.  If  he  has  no  such  fiscal 
year,  he  must  make  his  return  on  the  basis  of  the  calendar  year.  (From 
Reg.  45,  Rev.  Art.  25.) 

Fiduciary  defined. 

5.  The  word  "fiduciary"  means  a  guardian,  trustee,  executor, 
administrator,  receiver,  conservator,  or  any  person,  whether  indi- 
vidual or  corporate,  acting  in  any  fiduciary  capacity  for  any  per- 
son, trust  or  estate. 

(Source:  Fed.  Rev.  Act  1918,  §  200.) 

Fiduciary  is  a  term  which  applies  to  all  persons  that  occupy  positions 
of  peculiar  confidence  toward  others,  such  as  trustees,  executors  and  admin- 
istrators, and  a  fiduciary  for  income  tax  purposes  is  a  person  who  holds 
in  trust  an  estate  to  which  another  has  the  beneficial  title  or  in  which 
another  has  a  beneficial  interest  or  receives  and  controls  income  of  another, 
as  in  the  case  of  receivers.  A  committee  of  the  property  of  an  incompetent 
person  is  a  fiduciary.  (Reg.  45,  Rev.  Art.  1521.) 


228  TAX  ON  PERSONAL  INCOMES  §  350 

Fiduciary  distinct  from  agent. 

There  may  be  a  fiduciary  relationship  between  an  agent  and  a  principal, 
but  the  word  "agent"  does  not  denote  fiduciary.  A  fiduciary  relationship 
cannot  be  created  by  a  power  of  attorney.  An  agent  having  entire  charge 
of  property  with  authority  to  effect  and  execute  leases  with  tenants  entirely 
on  his  own  responsibility  and  without  consulting  his  principal,  merely 
turning  over  the  net  profits  from  the  property  periodically  to  his  principal 
by  virtue  of  authority  conferred  upon  him  by  a  power  of  attorney,  is  not 
a  fiduciary  within  the  meaning  of  the  statute.  In  cases  where  no  legal 
trust  has  been  created  in  the  estate  controlled  by  the  agent  and  attorney, 
the  liability  to  make  a  return  rests  with  the  principal.  ( Reg.  45,  Rev.  Art. 
1522.) 

"Paid,"  "paid  or  accrued,"  "received"  defined. 

6.  The  word  "paid"  for  the  purposes  of  the  deductions  and 
credits  under  this  article,  means  "paid  or  accrued"  or  "paid  or 
incurred,"  and  the  terms  "paid  or  incurred"  and  "paid  or  accrued" 
shall  be  construed  according  to  the  method  of  accounting  upon  the 
basis  of  which  the  net  income  is  computed,  under  this  article.  The 
term  "received"  for  the  purpose  of  the  computation  of  net  income 
under  this  article,  means  "received  or  accrued"  and  the  term  (( re- 
ceived or  accrued"  shall  be  construed  according  to  the  method  of 
accounting  upon  the  basis  of  which  the  net  income  is  computed 
under  this  article. 

(Source:  Fed  Rev.  Act  1918,  §  200.    Words  in  italics  new.) 
See  also  Deductions. 

What  may  be  deducted  as  "paid." 

"Paid"  or  "actually  paid"  within  the  meaning  of  this  title  does  not 
necessarily  contemplate  that  there  shall  be  an  actual  disbursement  in  cash 
or  its  equivalent.  If  the  amount  involved  represents  an  actual  expense  or 
element  of  cost  in  the  production  of  the  income  of  the  year  it  will  be  prop- 
erly deductible  even  though  not  actually  disbursed  in  cash,  provided  it  is 
so  entered  upon  the  books  of  the  company  as  to  constitute  a  liability 
against  its  assets,  and  provided  further  that  the  income  is  also  returned 
upon  an  accrued  basis.  If,  in  the  course  of  its  business,  a  corporation 
credits  the  accounts  of  individuals,  firms  or  corporations  with  the  amount 
of  any  expenses,  interest,  rentals,  wages,  etc.,  due  them,  thereby  making 
them  subject  to  the  personal  drawings  of  such  creditors  or  if  expenses 
actually  incurred  are  vouchered  in  definite  amounts,  the  amount  so  credited 
or  vouchered  may  be  treated  as  paid,  and  if  the  amounts  so  credited  or 
vouchered  are  expenses  incurred  concurrently  with  and  in  the  production 
of  the  income  of  the  year,  they  may  be  allowably  deducted  therefrom.  This 
ruling  must  not  be  construed  to  allow  as  a  deduction  any  accrued  charges 


§  350  N.  Y.  ACT  AND  U.  S.  REGULATIONS  229 

which  if  paid  in  cash  or  otherwise,  would  not  be  deductible.  (Article  126, 
Regulations  33,  Rev.,  Jan.  2d,  1918.) 

Amounts  which  accrue  on  the  books  monthly  or  at  other  stated  periods 
to  meet  fixed  annual  or  other  charges; 

and 

Reserves  maintained  to  meet  liabilities,  the  amount  of  which  and  date 
of  payment  or  maturity  of  which  is  not  definitely  determined  or  deter- 
minable  at  the  time  the  liability  is  incurred; 

may  be  deducted  from  gross  income  as  coming  under  this  definition  of 
"paid"  or  "paid  or  incurred." 

But  such  amounts  deductible  must  approximate  as  nearly  as  possible  the 
actual  liabilities  for  which  the  accruals  are  made.  Where  such  deductions 
are  made  on  an  accrual  basis  the  income  also  must  be  returned  on  an 
accrual  basis,  and  the  same  practice  is  to  be  consistently  followed  year 
after  year. 

Sinking  funds  or  reserves  set  up  to  meet  additions,  betterments,  shrink- 
age in  values,  losses  from  bad  debts,  or  other  capital  obligations,  will  in 
no  event  be  allowed  as  deductions.  (T.  D.  2433,  Jan.  8,  1917.) 

No  particular  bookkeeping  or  accounting  system  required. — Any  sys- 
tem of  accounting  which  is  not  consistent  with  the  purpose  and  intent  of 
the  rules  set  out  in  this  title,  and  with  the  general  rules  set  out  in  these 
regulations  for  the  ascertainment  of  net  income,  will  not  be  accepted  as  a 
correct  basis  for  making  returns.  (Art.  128,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Resident  defined. 

7.  The  word  "resident"  applies  only  to  natural  persons  and  in- 
cludes for  the  purpose  of  determining  liability  to  the  tax  imposed 
by  this  article  upon  or  with  reference  to  the  income  of  any  taxable 
year,  commencing  with  the  year  nineteen  hundred  and  nineteen, 
any  person  who  shall,  at  any  time  on  or  after  January  first  and 
not  later  than  March  fifteenth  of  the  next  succeeding  calendar 
year,  be  or  become  a  resident  of  the  state. 

(Source:  New.    See  also  chapter  on  Residence,  snipra.) 

Resident  aliens. — "Residence,"  as  used  in  Subdivision  1,  Paragraph  A  of 
the  Act  of  October  3,  1913  *  *  *  ,  is  held  to  be— 

"That  place  where  a  man  has  his  true,  fixed  and  permanent  home  and 
principal  establishment,  and  to  which  whenever  he  is  absent,  he  has  the 
intention  of  returning;  and  indicates  permanency  of  occupation  as  distinct 
from  lodging  or  boarding,  or  temporary  occupation." 

For  the  purposes  of  the  income  tax, — it  is  held  that  where  for  business 
purposes  or  otherwise,  an  alien  is  permanently  located  in  the  United 
States;  has  there  his  principal  business  establishment  and  is  there  perma- 
nently occupied  or  employed,  even  though  his  domicile  may  be  without  the 
United  States  he  will  be  held  to  be  within  the  definition  of — 


230  TAX   ON   PERSONAL  INCOMES  §  350 

"Every  person  residing  in  the  United  States,  though  not  a  citizen  there- 
of *  *  *  "  (T.  D.  2242,  September  17,  1915.) 

Aliens  temporarily  living  in  the  United  States. 

For  the  purposes  of  the  income  tax, — it  is  held  that  *  *  *  aliens 
who  are  physically  present  in  the  United  States,  but  only  temporarily  res- 
ident or  employed  therein  (as  for  a  season  or  other  similarly  definite  term, 
and  with  the  expectation  or  intention  of  leaving  the  United  States  upon 
the  termination  of  employment  or  accomplishment  of  the  purpose  which 
necessitated  presence  in  the  United  States),  are  within  the  class  of — 

"Persons  residing  elsewhere  *  *  *  ."  (T.  D.  2242,  September  17, 
1915.) 

Non-resident  alien  individual. 

Articles  312  to  315  inclusive,  Reg.  45,  Rev.,  define  a  "non-resident  alien 
individual"  for  purposes  of  the  federal  income  tax.  Briefly  it  means  an 
individual  (a)  whose  residence  is  not  within  the  United  States  and  (b) 
who  is  not  a  citizen  of  the  United  States.  *  *  *  Any  alien  living  in 
the  United  States  who  is  not  a  mere  transient  is  a  resident  of  the  United 
States.  Whether  he  is  a  transient  or  not  is  determined  by  his  intentions 
with  regard  to  his  stay.  *  *  *  The  best  evidence  of  his  intention  is 
afforded  by  the  conduct,  acts,  and  declarations  of  the  alien.  *  *  *  A 
mere  floating  intention,  indefinite  as  to  time,  to  return  to  another  country 
is  not  sufficient  to  constitute  him  a  transient.  *  *  *  Aliens  employed 
in  the  United  States  are  prima  facie  regarded  as  non-residents. 

Dividend  defined. 

8.  The  word  "dividend"  means  any  distribution  made  by  a  cor- 
poration out  of  its  earnings  or  profits  to  its  shareholders  or  mem- 
bers, whether  in  cash  or  in  other  property  or  in  stock  of  the  cor- 
poration. 

(Source:  Fed.  Rev.  Act  1918,  §  201.  For  additional  provisions  of  fed- 
eral statute  see  Comparative  Table,  supra.} 

Dividends. — Dividends  for  the  purpose  of  the  statute  comprise  any  dis- 
tribution in  the  ordinary  course  of  business,  even  though  extraordinary 
in  amount,  made  by  a  domestic  or  foreign  corporation  to  its  shareholders 
out  of  its  earnings  or  profits.  *  *  *  The  mere  declaration  of  a  divi- 
dend is  not  a  distribution.  *  *  *  Although  interest  on  State  bonds 
and  certain  other  obligations  is  not  taxable  when  received  by  a  corporation, 
upon  amalgamation  with  the  other  funds  of  the  corporation  such  income 
loses  its  identity  and  when  distributed  to  stockholders  in  dividends  is  tax- 
able to  the  same  extent  as  other  dividends.  (Reg.  45,  Rev.  Art.  1541.) 

Dividends  paid  in  property. — Dividends  paid  in  securities  or  other 
property  (other  than  its  own  stock),  in  which  the  earnings  of  a  corpora- 
tion have  been  invested,  are  income  to  the  recipients  to  the  amount  of  the 
fair  market  value  of  such  property  when  receivable  by  the  stockholders. 


§  350  N.  Y.  ACT  AND  U.  S.  REGULATIONS  231 

A  dividend  paid  in  stock  of  another  corporation  is  not  a  stock  dividend. 
Where  a  corporation  declares  a  dividend  payable  in  stock  of  another  cor- 
poration, setting  aside  the  stock  to  be  so  distributed  and  notifying  the 
stockholders  of  its  action,  the  income  arising  to  the  recipients  of  such 
stock  is  its  fair  market  value  at  the  time  the  dividend  becomes  payable. 
See  Article  53.  Scrip  dividends  are  subject  to  tax  in  the  year  in  which 
the  warrants  are  issued.  (Reg.  45,  Rev.  Art.  1544.) 

Dividends  paid  in  Liberty  Bonds. — In  an  opinion  of  the  Attorney- 
General  to  the  Secretary  of  the  Treasury  (T.  D.  2512,  June  8,  1917)  on 
the  question  of  whether  stockholders  of  a  corporation  receiving  a  divi- 
dend declared  payable  and  distributable  in  bonds  issued  under  the  act  of 
Congress  approved  April  24,  1917,  will  have  to  pay  an  income  tax,  it  is 
said  that  such  tax  is  payable.  The  said  act  of  Congress  provides  as  to  the 
bonds  thereby  authorized,  that 

"The  principal  and  interest  thereof  shall  be  exempt  both  as  to  principal 
and  interest  from  all  taxation  except  estate  or  inheritance  taxes  imposed 
by  authority  of  the  United  States  or  its  possessions,  or  by  any  state  or 
local  taxing  authority'  *  *  *  DUt  &  tax  levied  upon  one's  net  income 
or  annual  gain  cannot  be  evaded  because  the  income  or  gain  happens  to  be 
liquidated  by  the  delivery  of  a  certain  number  of  those  bonds  or  other  non- 
taxable  securities.  Such  a  tax  is  upon  the  income  itself  as  an  entirety 
and  not  upon  the  specific  articles  into  which  this  income  is  finally  trans- 
muted. When  these  bonds,  therefore,  are  used  as  a  medium  of  payment, 
whether  in  the  discharge  of  a  private  debt  or  a  corporate  dividend,  the 
profit  or  gain  to  the  recipient  is  nevertheless  subject  to  income  tax." 

Nor  is  a  corporation  owning  Liberty  Bonds  exempt  to  that  extent  from 
excise,  franchise  and  other  corporation  taxes  of  the  United  States  or  sev- 
eral states,  the  doctrine  of  Flint  v.  Stone  Tracy  Co.,  220  U.  S.  107,  being 
followed.  In  that  case,  the  court  said: 

"It  is  well  settled  by  the  decisions  of  this  court  that  when  the  sovereign 
authority  has  exercised  the  right  to  tax  a  legitimate  subject  of  taxation 
as  an  exercise  of  a  franchise  or  privilege,  it  is  no  objection  that  the 
measure  of  taxation  is  found  in  the  income  produced  in  part  from  prop- 
erty which  of  itself  considered,  is  non-taxable.  The  measure  of  taxation 
is  the  income  of  the  corporation  from  all  sources."  (T.  D.  2512,  June  8, 
1917.) 

But  the  income  derived  by  an  individual  from  the  interest  paid  on 
Liberty  Loan  Bonds  does  not  constitute  taxable  income,  whether  bonds 
have  been  received  as  a  dividend  or  otherwise.  (Letter  to  Lee  Higginson  & 
Co.,  Boston,  signed  by  Dep.  Com.  L.  F.  Speer,  June  30,  1917.) 

Determination  of  cash  value  to  the  shareholder  of  a  dividend  paid 
in  Liberty  Bonds. — "Where  a  corporation  distributed  Liberty  Bonds 
among  its  stockholders  as  a  dividend: 

"If  the  corporation  bought  the  Liberty  Bonds  at  99.25  and  the  market 
value  thereof  when  received  by  the  stockholder  was  94.25,  should  the  stock- 
holder make  return  of  the  dividend  at  99.25  or  at  94.25?" 


232  TAX   ON  PERSONAL  INCOMES  §  350 

In  reply  you  are  advised  that,  for  the  purposes  of  the  income  tax,  income 
should  be  predicated  on  the  cash  value  of  the  Liberty  Bonds  at  the  time  of 
their  receipt  by  the  stockholders.  (Letter  to  Ropes,  Gray,  Boyden  & 
Perkins,  Boston,  Mass.,  signed  by  Deputy  Commissioner  L.  F.  Speer,  and 
dated  November  12,  1918.) 

Stock  dividends.— A  dividend  paid  in  stock  of  the  corporation  is  income 
to  the  amount  of  the  earnings  or  profits  distributed,  as  shown  by  the 
transfer  of  surplus  to  capital  account  on  the  books  of  the  corporation, 
usually  equal  to  the  par  value  of  the  stock  distributed.  But  stock  dis- 
tributions made  out  of  surplus  other  than  earnings  or  profits  accumulated 
since  February  28,  1913,  when  there  are  no  such  earnings  or  profits,  are 
not  dividends  within  the  meaning  of  the  statute  and  are  free  from  tax  a8 
dividends.  Stock  dividends  paid  from  earnings  or  profits  accumulated 
after  February  28,  1913,  received  by  a  fiduciary  and  retained  as  an  accre- 
tion to  the  estate  under  the  terms  of  the  will  or  trust,  are  income  to  the 
estate.  (Reg.  45,  Rev.  Art.  1545.) 

Misapprehension  exists  as  to  the  effect  of  the  decision  of  the  Supreme 
Court  in  the  case  of  Towne  vs.  Eisner  (245  U.  S.  418),  handed  down 
January  7,  1918.  In  this  opinion  it  was  held  that  under  the  Act  of  October 
3,  1913,  a  stock  dividend  declared  by  a  corporation  January  2,  1914,  was 
not  properly  regarded  as  income.  It  does  not  necessarily  follow,  however, 
that  no  stock  dividends  are  to  be  held  taxable  under  the  provisions  of  the 
Acts  of  September  8,  1916,  and  October  3,  1917. 

The  Act  of  October  3,  1913,  which  was  the  only  Act  before  the  Court  in 
the  case,  contained  no  provision  expressly  providing  for  treating  stock 
dividends  as  income,  and  the  decision  of  the  Court  was  to  the  effect  that 
the  Act  was  not  to  be  construed  as  taxing  such  dividends.  The  Court  did 
not  decide  that  such  dividends  cannot  be  income  within  the  meaning  of  the 
Sixteenth  Amendment,  but  expressly  recognized  that  the  word  "income" 
may  have  a  different  meaning  in  the  Statute  from  the  meaning  in  the 
Constitution. 

The  Act  of  September  8,  1916,  contains  an  express  provision  taxing  stock 
dividends  declared  and  paid  out  of  earnings  accrued  since  March  1,  1913. 
In  the  absence  of  a  decision  as  to  the  legal  effect  of  these  express  pro- 
visions contained  in  the  later  Acts,  the  Bureau  of  Internal  Revenue  nat- 
urally will  continue  to  be  governed  by  the  express  provisions  of  the  later 
Acts  in  reference  to  stock  dividends.  (Statement  issued  to  Collectors  and 
Agents,  signed  by  Commissioner  Daniel  C.  Roper,  and  dated  Jan.  10,  1918.) 

Stock  dividends  under  the  Act  of  September  8,  1916. —  (Decision. 
Macomber  v.  Eisner,  Collector,  U.  S.  District  Court,  Southern  District  of 
New  York,  Jan.  23,  1919.)  [Comment:  This  is  a  suit  for  the  recovery  of 
tax  paid  under  the  Act  of  September  8,  1916,  on  a  "stock  dividend"  re- 
ceived by  the  plaintiff.  The  contention  of  counsel  for  the  plaintiff,  Murray, 
Prentice  &  Howland,  of  New  York,  is  that  the  provision  of  the  taxing  Act 
by  which  so-called  "stock  dividends"  are  in  terms  stated  to  be  income,  to  be 
taxable  as  such  to  the  same  extent  as  are  cash  dividends,  is  unconstitu- 
tional, because  to  tax  "stock  dividends"  is  to  tax  capital  or  prin- 


§  350  N.  Y.  ACT  AND  U.  S.  REGULATIONS  233 

cipal,  and  such  a  tax  may  not  be  imposed  except  as  other  direct  taxes  are 
laid,  that  is,  by  apportionment  among  the  several  states  according  to 
population.  Judge  Mayer,  of  the  United  States  District  Court,  Southern 
District  of  New  York,  on  January  23,  1919,  overruled  the  demurrer  of 
the  Government  to  the  complaint  upon  the  authority  of  Towne  v.  Eisner, 
245  U.  S.  418,  and  Peabody  v.  Eisner,  247  U.  S.  347.  It  is  understood 
that  the  Government  will  immediately  appeal  from  this  decision  to  the 
United  States  Supreme  Court  and  that  the  case  will  be  advanced  on  the 
docket  so  that  speedy  adjudication  may  be  looked  for,  perhaps  during  the 
present  term.  Mr.  Charles  E.  Hughes  and  Mr.  George  Welwood  Murray 
presented  the  case  for  the  plaintiff.  Inasmuch  as  a  like  provision  relative 
to  "stock  dividends"  appears  in  the  Act  of  September  8,  1916,  as  amended 
by  the  Act  of  October  3,  1917,  and  also  in  the  Eevenue  Bill  (The  Revenue 
Act  of  1918)  now  pending  before  Congress,  the  final  judgment  in  Ma- 
comber  v.  Eisner  will  be  controlling  for  the  Revenue  Acts  of  1916,  1917 
and  1918.  The  question  as  to  the  liability  of  "stock  dividends"  to  tax 
under  the  Act  of  October  3,  1913,  was  disposed  of  in  Toione  v.  Eisner* 
above  cited,  where  the  decision  by  the  Supreme  Court  on  January  7,  1918, 
was  against  the  Government's  contention.  Counsel  in  the  Macomber  case 
were  also  counsel  in  the  Towne  case. 

The  opinion  in  the  above  case  consists  merely  of  an  endorsement  on  the 
demurref,  as  follows: 

Demurrer  overruled  on  the  authority  of  Towne  v.  Eisner,  245  U.  S. 
418.  See  also  Peabody  v.  Eisner,  247  U.  S.  347. 

JULIUS  M.  MAYER, 

January  23,  1919.  U.  S.  D.  J. 

Distribution  in  liquidation. — So-called  liquidation  or  dissolution  divi- 
dends are  not  dividends  within  the  meaning  of  the  statute,  and  amounts 
so  distributed,  whether  or  not  including  any  surplus  earned  since  Febru- 
ary 28,  1913,  are  to  be  regarded  as  payments  for  the  stock  of  the  dis- 
solved corporation.  Any  excess  so  received  over  the  cost  of  his  stock 
to  the  stockholder,  or  over  its  fair  market  value  as  of  March  1,  1913,  if 
acquired  prior  thereto,  is  a  taxable  profit.  A  distribution  in  liquidation 
of  the  assets  and  business  of  a  corporation,  which  is  a  return  to  the 
stockholder  of  the  value  of  his  stock  upon  a  surrender  of  his  interest 
in  the  corporation,  is  distinguishable  from  a  dividend  paid  by  a  going 
corporation  out  of  current  earnings  or  accumulated  surplus  when  declared 
by  the  directors  in  their  discretion,  which  is  in  the  nature  of  a  re- 
current return  upon  the  stock.  (Reg.  45,  Rev.  Art.  1548.) 

Distribution  from  depletion  or  depreciation  reserve.— A  reserve  set 
up  out  of  gross  income  by  a  corporation  and  maintained  for  the  purpose 
of  making  good  any  loss  of  capital  assets  on  account  of  depletion  or  de- 
preciation is  not  a  part  of  its  surplus  out  of  which  ordinary  dividends 
may  be  paid.  A  distribution  made  from  such  a  reserve  will  be  considered 
a  liquidating  dividend  and  will  constitute  taxable  income  to  a  stock- 
holder only  to  the  extent  that  the  amount  so  received  is  in  excess  of  the 


234  TAX   ON  PERSONAL  INCOMES  §  350 

cost  or  fair  market  value  as  of  March  1,  1913,  of  his  shares  of  stock.  No 
distribution,  however,  will  be  deemed  to  have  been  made  from  such  a  re- 
serve except  to  the  extent  that  the  amount  paid  exceeds  the  surplus  and 
undivided  profits  of  the  corporation.  In  general,  any  distribution  made 
by  a  corporation  other  than  out  of  earnings  or  profits  accumulated 
since  February  28,  1913,  is  to  be  regarded  as  a  return  to  the  stockholder 
of  part  of  the  capital  represented  by  his  shares  of  stock,  and  upon  a  sub- 
sequent sale  of  such  stock  his  profit  will  be  the  excess  of  the  selling  price 
over  the  cost  of  the  stock  or  its  fair  market  value  as  of  March  1,  1913, 
after  applying  on  such  cost  or  value  the  amount  of  any  such  capital 
distribution.  (Reg.  45,  Rev.  Art.  1549.) 

Interest  on  exempt  bonds  on  distribution  as  dividend. — Interest  on 
State,  municipal,  and  United  States  bonds  received  by  corporations  is  not 
taxable  to  the  corporation.  Upon  amalgamation  with  other  funds  of  the 
corporation  such  income  loses  its  identity.  When  distributed  to  stock- 
holders as  a  dividend,  the  entire  amount  of  the  dividend  is  subject  to  in- 
clusion in  returns  of  income  for  the  purposes  of  the  income  tax.  (Art. 
4,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Scrip  dividends. — The  dividend  paid  by  the  corporation  [in  1914]  is 
income  to  the  stockholder  for  1914  *  *  *  .  The  dividends  must  be  in- 
cluded in  the  return  and  at  the  face  value  of  the  scrip. 

For  income  tax  purposes  this  transaction  is  held  to  be  a  payment  in 
cash  of  the  dividend,  and  an  investment  of  the  cash  in  the  scrip.  (Extract 
from  letter  to  Oudin,  Kilbreth  &  Schackno,  signed  by  Deputy  Commissioner 
L.  F.  Speer,  and  dated  Jan.  19,  1915.) 

Dividends  paid  by  a  foreign  corporation. — Dividends  declared  and 
paid  by  a  foreign  corporation  which  derives  its  entire  income  from  busi- 
ness done  wholly  within  the  United  States  and  pays,  under  the  provisions 
of  the  Federal  income-tax  law,  a  tax  upon  its  net  income,  should  be  treated 
in  the  same  manner  as  dividends  from  domestic  corporations.  (T.  D. 
2090,  Dec.  14,  1914.) 

Income  from  private  banks  considered  as  dividends. — *  *  *  Income 
which  the  members  of  the  association  receive  from  the  bank  because  of 
their  investments  therein  will  be  considered  dividends,  *  *  *  .  ( T.  D. 
2152,  Feb.  12,  1915.) 

Taxes  paid  by  bank  for  owners  of  bank  stock  considered  as  divi- 
dends.— Taxes  assessed  against  the  stockholders  of  a  bank  and  paid  by 
the  bank  in  behalf  of  the  stockholders  do  not  constitute  an  allowable  deduc- 
tion from  the  gross  income  of  the  bank,  but  do  constitute  an  allowable  de- 
duction in  the  return  of  the  individual  *  *  *  .  The  amount  of  taxes 
BO  paid  should  be  included  in  his  return  as  income,  the  said  amount  be- 
ing considered  as  an  additional  dividend  to  the  amount  of  the  taxes  paid. 
(T.  D.  2135,  Jan.  23,  1915.) 

Dividends  paid  on  life  insurance  policies. — Dividends  paid  on  life  in- 
surance policies  that  have  not  matured,  whether  such  dividends  are  drawn 
in  cash  by  the  insured  or  applied  to  the  reduction  of  the  annual  premium 


§  350  N.  Y.  ACT  AND  U.  S.  REGULATIONS  235 

due,  are  not  considered  items  of  taxable  income  under  the  law,  and  should 
be  excluded  from  a  return  of  income. 

Dividends  from  paid-up  policies,  however,  are  considered  income  to  the 
recipient,  and  must  be  included  in  the  annual  return  of  income  *  *  *  . 
They  are  considered  the  same  as  dividends  or  net  earnings  from  corpora- 
tions subject  to  a  like  tax  and  may  *  *  *  .  (T.  D.  2137,  Jan.  30, 
1915.) 

Foreign  country  and  United  States  defined. 

9.  The  words  "foreign  country"  or  "foreign  government"  mean 
any  jurisdiction  other  than  one  embraced  within  the  United  States. 
The  words  "United  States"  include  the  states,  the  territories  of 
Alaska  and  Hawaii  and  the  District  of  Columbia. 

(Source:  Italicized  portions  new.    Other,  Fed.  Rev.  Act  1918,  §  1.) 
Withholding  agent  defined. 

10.  The  words  "withholding  agent"  include  all  individuals,  cor- 
porations, associations  and  partnerships,  in  whatever  capacity  act- 
ing, including  lessees,  or  mortgagors  of  real  or  personal  property, 
fiduciaries,  employers,  and  all  officers  and  employees  of  the  state, 
or  of  any  municipal  corporation  or  political  subdivision  of  the 
state,  having  the  control,  receipt,  custody,  disposal  or  payment,  of 
interest,  rent,  salaries,  wages,  premiums,  annuities,  compensations, 
remunerations,  emoluments  or  other  fixed  or  determinable  annual 
or  periodical  gains,  profits  and  income  taxable  under  this  article. 

(Source:  Wording  new  Sense  taken  from  Fed.  Rev.  Act  1918,  §§  200 
and  221-a.) 

Guardians,  trustees,  executors,  administrators,  receivers,  conservators, 
and  all  persons,  corporations,  or  associations  acting  in  any  fiduciary  ca- 
pacity^ hereinafter  referred  to  as  fiduciary  agents,  who  hold  in  trust 
an  estate  of  another  person  or  persons,  shall  be  designated  the  "source" 
for  the  purpose  of  collecting  the  income  tax.  (T.  D.  2231,  July  16,  1915.) 

An  effort  has  been  made  to  meet  the  views  of  certain  departments  that 
withholding  should  occur  from  the  aggregate  amounts  received  by  an 
individual  from  the  various  disbursing  officers  within  a  department;  but, 
after  further  and  careful  consideration  of  both  the  law  and  the  adminis- 
trative features  involved,  it  has  been  determined  that  each  disbursing 
officer  must  be  governed  by  the  amounts  paid  by  him  alone,  and  that  it  is 
not  incumbent  upon  him  to  ascertain  and  take  into  consideration  amounts 
that  may  have  been  paid  by  other  disbursing  officers. 

This  view  is  in  full  accord  with  the  provision  of  the  income-tax  law 
which  makes  "all  officers  and  employees  of  the  United  States  having  the 
control,  receipt,  custody,  disposal,  or  payment,"  etc.,  personally  liable  for 


236  TAX   ON   PERSONAL  INCOMES  §  351 

the  normal  tax  of  1  [8]  per  cent  on  amounts  passing  through  their  hands, 
subject  to  the  character  and  amount  of  income  and  the  exemptions  fixed  by 
law. 

All  rulings  heretofore  made  on  the  subject,  by  letter  or  otherwise,  that 
are  in  conflict  herewith,  are  hereby  overruled  and  superseded.  (T.  D. 
2135,  Jan.  23,  1915.) 

All  persons,  firms,  etc.,  mentioned  above  are  referred  to  in  these  regu- 
lations as  "debtors"  or  "withholding  agents,"  and  the  word  "source"  is 
to  apply  to  the  place  where  the  income  originated  and  is  payable.  (Art. 
31,  Reg!  33,  Jan.  5,  1914.) 

Tax-exempt  corporations  required  to  withhold. — While  the  organiza- 
tions enumerated  in  section  11  of  this  title  are  themselves  exempt  from  the 
tax  on  any  income  received  by  them,  they  are  not  exempt  from  the  require- 
ments of  the  title  with  respect  to  the  withholding  of  the  normal  tax  on  bond 
interest  *  *  *  paid  to  foreign  corporations  or  bond  interest  paid  to 
individuals  on  bonds  having  a  tax  free  covenant  or  from  furnishing  in- 
formation in  accordance  with  the  provisions  of  this  title  as  amended  by 
section  1205  of  Title  XII  of  the  act  of  October  3,  1917.  (Art.  81,  Reg. 
33,  Rev.,  Jan.  2,  1918.) 

Persons  liable  to  the  tax ;  rate  of  tax ;  and  first  taxable  year. 

SEC.  351.  Imposition  of  income  tax.  A  tax  is  hereby  imposed 
upon  every  resident  of  the  state,  which  tax  shall  be  levied,  collected 
and  paid  annually  upon  and  with  respect  to  his  entire  net  income 
as  herein  denned  at  rates  as  follows :  One  per  centum  of  the  amount 
of  net  income  not  exceeding  ten  thousand  dollars;  two  per  centum 
of  the  amount  of  net  income  in  excess  of  ten  thousand  dollars  but 
not  in  excess  of  fifty  thousand  dollars;  three  per  centum  of  the 
amount  of  net  income  in  excess  of  fifty  thousand  dollars.  A  like 
tax  is  hereby  imposed  and  shall  be  levied,  collected  and  paid  an- 
nually, at  the  rates  specified  in  this  section,  upon  and  with  respect 
to  the  entire  net  income  as  herein  defined,  except  as  hereinafter 
provided,  from  all  property  owned  and  from  every  business,  trade, 
profession  or  occupation  carried  on  in  this  state  by  natural  persons 
not  residents  of  the  state.  Such  tax  shall  first  be  levied,  collected 
and  paid  in  the  year  nineteen  hundred  and  twenty  upon  and  with 
respect  to  the  taxable  income  for  the  calendar  year  nineteen  hun- 
dred and  nineteen,  or  for  any  taxable  year  ending  during  the  year 
nineteen  hundred  and  nineteen. 

(Source:  New.) 

*  See  alsn  §  350,  supra.  Definition  of  Resident,  and  Chapter  on  Residence. 
Net  Income. 


§  353  N".  Y.  ACT  AND  U.  S.  REGULATIONS  237 

Certain  personal  property  exempt. 

SEC.  352.  Exemption  of  certain  personal  property  from  taxation. 
The  taxes  imposed  by  this  article  are  in  addition  to  all  other  taxes 
imposed  by  law,  except  that  money  on  hand,  on  deposit  or  at  inter- 
est, bonds,  notes  and  choses  in  action  and  shares  of  stock  in  cor- 
porations other  than  banks  and  banking  associations,  owned  by  any 
individual  or  constituting  a  part  of  a  trust  or  estate  subject  to  the 
income  tax  imposed  by  this  article,  and  from  which  any  income  is 
derived,  shall  not  after  July  thirty-first,  nineteen  hundred  and  nine- 
teen, be  included  in  the  valuation  of  the  personal  property  included 
in  the  assessment-rolls  of  the  several  tax  districts,  villages,  school 
districts  and  special  tax  districts  of  the  state. 

(Source:   New.    See  Chapter  XVII,  Part  IV,   supra.) 
Ascertainment  of  gain  and  loss. 

SEC.  353.  Ascertainment  of  gain  and  loss.  For  the  purpose  of 
ascertaining  the  gain  derived  or  loss  sustained  from  the  sale  or 
other  disposition  of  property,  real,  personal  or  mixed,  the  basis 
shall  be  first,  in  case  of  property  acquired  before  January  first, 
nineteen  hundred  and  nineteen,  the  fair  market  price  or  value  of 
such  property,  as  of  January  first,  nineteen  hundred  and  nineteen, 
and,  second,  in  case  of  property  acquired  on  or  after  that  date,  the 
cost  thereof;  or  the  inventory  value,  if  the  inventory  is  made  in 
accordance  with  this  article. 

(Source:  Fed.  Rev.  Act  1918,  §202-a.  Note:  Federal  law  has  March 
1st,  1913 — where  the  State  law  has  January  1st,  1919.) 

Method  of  determining  value  as  of  March  i,  1913. — No  method  of  de- 
termining this  value  can  be  stated  by  the  department  which  will  adequately 
meet  all  circumstances.  What  that  value  was  is  a  question  of  fact  to  be 
established  by  any  evidence  which  will  reasonably  and  adequately  make  it 
appear.  (Art.  4,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Determination,  in  the  case  of  stock,  of  "fair  market  price  or  value" 
as  of  March  i,  1913. — "In  case  of  the  sale  of  stock  traded  in  on  the  ex- 
change, shall  the  opening  price  on  March  1st,  or  the  closing  price,  or  the 
average  price  for  the  day,  be  taken  as  the  basis?" 

Under  paragraph  (c)  of  Section  2  and  paragraph  (4)  of  Section  5,  Act 
of  September  8,  1916,  in  case  of  property  acquired  prior  to  March  1,  1913, 
"the  fair  market  price  or  value  of  such  property  as  of  March  1,  1913,  shall 
be  the  basis  for  determining  the  amount  of  gain  or  loss"  upon  sale  or  other 
disposition  of  the  property. 


238  TAX   ON  PEESONAL  INCOMES  §  354 

"The  fair  market  price  or  value  as  of  March  1"  is  held  to  be  the  fair 
market  price  or  value  as  of  the  entire  day  of  March  1,  which,  in  the  case 
of  variation  between  "opening  and  closing  price"  for  the  day,  would  mean 
the  average  price  for  the  day.  This,  however,  would  be  conditioned  upon 
showing  that  the  exchange  quotation  represented  the  fair  market  price  or 
value  of  the  stock,  as  it  is  this  "fair  market  price  or  value"  which  is  to 
control,  however  that  fact  may  be  ascertained.  (Letter  to  The  Corpora- 
tion Trust  Company,  signed  by  Commissioner  W.  H.  Osborn,  and  dated 
November  21,  1916.) 

Basis  for  determining  gain  or  loss  from  sale. — For  the  purpose  of  as- 
certaining the  gain  or  loss  from  the  sale  or  exchange  of  property  the  basis 
is  (a)  its  fair  market  price  or  value  as  of  March  1,  1913,  if  acquired  prior 
thereto,  or  ( 6 ) ,  if  acquired  on  or  after  that  date,  its  cost  or  its  approved 
inventory  value.  In  both  cases  proper  adjustment  must  be  made  for  any 
depreciation  or  depletion  sustained.  What  the  fair  market  price  or  value  of 
property  was  on  March  1,  1913,  is  a  question  of  fact  to  be  established  by 
any  evidence  which  will  reasonably  and  adequately  make  it  appear.  (Reg. 
45,  Rev.  Art.  1561.) 

Sale  of  property  acquired  by  gift  or  bequest. — In  the  case  of  property 
acquired  by  gift,  bequest,  devise  or  descent  the  basis  for  computing  gain  or 
loss  on  a  sale  is  the  fair  market  price  or  value  of  the  property  at  the  date 
of  acquisition  or  as  of  March  1,  1913,  if  acquired  prior  thereto.  For  the 
purpose  of  determining  the  profit  or  loss  from  the  sale  of  property  ac- 
quired by  bequest,  devise  or  descent  since  February  28,  1913,  its  value 
as  appraised  for  the  purpose  of  the  federal  estate  tax,  or  in  the  case  of 
estates  not  subject  to  that  tax  its  value  as  appraised  in  the  State  court 
for  the  purpose  of  State  inheritance  taxes,  should  be  deemed  to  be  its  fair 
market  value  when  acquired.  (Reg.  45,  Rev.  Art.  1562.) 

Gain  or  loss  from  exchange  of  property. 

SEC.  354.  Exchange  of  property.  Vhen  property  is  exchanged 
for  other  property,  the  property  received  in  exchange  shall  for  the 
purpose  of  determining  gain  or  loss  be  treated  as  the  equivalent  of 
cash  to  the  amount  of  its  fair  market  value,  if  any;  but  when  in 
connection  with  the  reorganization,  merger  or  consolidation  of  a 
corporation  a  taxpayer  receives,  in  place  of  stock  or  securities  owned 
by  him,  new  stock  or  securities  of  no  greater  aggregate  par  or  face 
value,  no  gain  or  loss  shall  be  deemed  to  occur  from  the  exchange, 
and  the  new  stock  or  securities  received  shall  be  treated  as  taking 
the  place  of  the  stock,  securities  or  property  exchanged. 

(Source:  Fed.  Rev.  Act  1918,  §  202-6,  Is*  sentence.) 

Exchanges  of  property. — Gain  or  loss  arising  from  the  acquisition  and 
subsequent  disposition  of  property  is  realized  when  as  the  result  of  a 


§  354  N.  Y.  ACT  AND  U.  S.  REGULATIONS  239 

transaction  between  the  owner  and  another  person  the  property  is  con- 
verted into  cash  or  into  property  (a)  that  is  essentially  different  from  the 
property  disposed  of  and  (&)  that  has  a  market  value.  In  other  words, 
both  (a)  a  change  in  substance  and  not  merely  in  form,  and  (5)  a  change 
into  the  equivalent  of  cash,  are  required  to  complete  or  close  a  transac- 
tion from  which  income  may  be  realized.  By  way  of  illustration,  if  a  man 
owning  ten  shares  of  listed  stock  exchanges  his  stock  certificate  for  u  voting 
trust  certificate,  no  income  is  realized,  because  the  conversion  is  merely 
in  form;  or  if  he  exchanges  his  stock  for  stock  in  a  small,  closely  held  cor- 
poration, no  income  is  realized  if  the  new  stock  has  no  market  value,  al- 
though the  conversion  is  more  than  formal ;  but  if  he  exchanges  his  stock  for 
a  liberty  bond,  income  may  be  realized,  because  the  conversion  is  into  inde- 
pendent property  having  a  market  value.  The  property  received  in  ex- 
change may  be  real  estate,  personal  property,  or  a  chose  in  action.  The 
exchange  of  a  so-called  convertible  bond  for  stock  pursuant  to  such  a  privi- 
lege granted  in  the  bond  will  produce  income  if  the  stock  received  in  ex- 
change has  a  fair  market  value  in  excess  of  the  cost  or  fair  market  value 
as  of  March  1,  1913,  of  the  bond.  (Reg.  45,  Rev.  Art.  1563.) 

Determination  of  gain  or  loss  from  exchange  of  property. —  (a)  The 
amount  of  income  derived  in  the  case  of  an  exchange  of  property,  as  of 
stock  for  a  bond,  is  the  excess  of  the  fair  market  value  at  the  time  of  ex- 
change of  the  bond  received  in  exchange  over  the  original  cost  of  the  stock 
exchanged  for  it,  or  over  the  fair  market  price  or  value  of  such  stock  as  of 
March  1,  1913,  if  acquired  before  that  date.  The  amount  of  income  derived 
from  a  subsequent  sale  of  the  bond  for  cash  is  the  excess  of  the  amount  so 
received  over  the  fair  market  value  of  such  bond  when  acquired  in  ex- 
change for  the  stock.  (6)  On  the  other  hand,  if  the  property  received 
in  exchange  is  substantially  the  same  property  or  has  no  market  value, 
then  no  gain  or  loss  is  realized,  but  the  new  property  is  to  be  regarded  as 
substituted  for  the  old  and  upon  a  sale  of  the  new  property  the  amount  of 
income  derived  is  the  excess  of  the  amount  so  received  over  die  cost  or  fair 
market  value  as  of  March  1,  1913,  of  the  old.  (Art.  1564.) 

Exchange  for  different  kinds  of  property. —  (a)  If  property  is  ex- 
changed for  two  different  kinds  of  property,  such  as  bonds  and  stock,  the 
bonds  having  a  market  value  and  the  stock  none,  the  value  of  the  bonds 
is  to  be  compared  with  the  cost  or  fair  market  value  as  of  March  1,  1913,  of 
the  original  property,  as  the  case  may  be.  If  the  market  value  of  the  bonds 
is  less  than  such  cost  or  value,  the  difference  represents  the  cost  of  the 
stock.  If  the  market  value  of  the  bonds  is  greater  than  such  cost  or  value, 
the  difference  is  taxable  income  at  the  time  of  the  exchange  and  whenever 
sold  the  entire  proceeds  of  the  stock  will  be  taxable.  ( 6 )  If  property  is  ex- 
changed for  two  different  kinds  of  property,  such  as  bonds  and  stock, 
neither  having  a  market  value,  the  cost  or  fair  market  value  as  of  March 
1,  1913,  of  the  original  property  should  be  apportioned,  if  possible,  between 
the  bonds  and  stock  for  the  purpose  of  determining  gain  or  loss  on  subse- 
quent sales.  If  no  fair  apportionment  is  practicable,  no  profit  on  any 
subsequent  sale  of  any  part  of  the  bonds  or  stock  is  realized  until  out  of 


240  TAX   ON   PEBSONAL   INCOMES  §  354 

the  proceeds  of  sales  shall  have  been  recovered  the  entire  cost  or  fair  mar- 
ket value  as  of  March  1,  1913,  of  the  original  property.     (Art.  1565.) 

Exchange  of  property  and  stock. —  (a)  Where  property  is  transferred 
to  a  corporation  in  exchange  for  its  stock,  if  the  previous  owner  of  the 
property  receives  50  per  cent  or  more  of  the  stock  of  the  corporation,  so 
that  an  interest  of  50  per  cent  or  more  in  such  property  remains  in  him, 
then  no  gain  or  loss  is  realized  by  such  owner  from  the  transaction.  For 
the  purpose  of  ascertaining  the  gain  or  loss  from  the  subsequent  sale  by 
the  stockholder  of  any  stock  so  received  for  such  property  the  stock  is  to 
be  considered  as  substituted  for  the  property,  and  the  cost  of  the  property 
or  (if  acquired  prior  thereto)  its  fair  market  value  as  of  March  1,  1913,  is 
the  basis  for  determining  the  amount  of  such  gain  or  loss.  For  the  pur- 
pose of  ascertaining  the  gain  or  loss  from  the  subsequent  sale  by  the  corpora- 
tion of  any  such  property  the  cost  of  the  property  to  the  former  owner  or 
(if  acquired  prior  thereto  by  him)  its  fair  market  value  as  of  March  1, 
1913,  is  the  basis  for  determining  the  amount  of  such  gain  or  loss.  As  to 
the  invested  capital  of  the  corporation,  see  section  331  of  the  statute  and 
article  941.  "Owner"  includes  "owners."  This  article  applies  to  the  incor- 
poration of  a  business  previously  conducted  by  an  individual  or  by  a  part- 
nership, (b)  If,  however,  the  exchange  of  property  and  stock  involves  less 
than  50  per  cent  of  the  stock  of  the  corporation,  the  exchange  constitutes 
a  closed  transaction,  and  the  former  owner  of  the  property  realizes  a  gain 
or  loss  if  the  stock  has  a  market  value  and  such  market  value  is  greater 
or  less  than  the  cost  or  (if  acquired  prior  thereto)  the  fair  market  value 
as  of  March  1,  1913,  of  the  property  given  in  exchange,  (c)  Where  a 
corporation  dissolves  and  distributes  its  assets  in  kind  and  not  in 
cash  no  taxable  income  is  received  from  the  transaction  by  its  stock- 
holders, because  they  merely  exchange  an  indirect  interest  for  a  direct 
interest  in  the  same  property.  As  to  cash  distributions,  see  article  1548. 
For  the  purpose  of  ascertaining  the  gain  or  loss  from  the  subsequent  sale 
of  any  property  so  received  upon  dissolution  see  article  1564  (6).  (Art. 
1566.) 

Exchange  of  stock  for  other  stock  of  no  greater  par  value. — In  gen- 
eral, where  two  (or  more)  corporations  unite  their  properties  by  either  (a) 
the  dissolution  of  corporation  B  and  the  sale  of  its  assets  to  corporation 
A,  or  (&)  the  sale  of  its  property  by  B  to  A  and  the  dissolution  of  B,  or 
(c)  the  sale  of  the  stock  of  B  to  A  and  the  dissolution  of  B,  or  (d)  the 
merger  of  B  into  A,  or  (e)  the  consolidation  of  the  corporations,  no  taxable 
income  is  received  from  the  transaction  by  A  or  B  or  the  stockholders  of 
either,  provided  the  sole  consideration  received  by  B  and  its  stockholders 
in  (a),  (b) ,  (c)  and  (d)  is  stock  or  securities  of  A,  and  by  A  and  B  and 
their  stockholders  in  (e)  is  stock  or  securities  of  the  consolidated  corpora- 
tion, in  any  case  of  no  greater  aggregate  par  or  face  value  than  the  old 
stock  and  securities  surrendered.  If  the  stock  so  received  has  no  nominal  or 
par  value  the  limitation  on  aggregate  par  value  is  inapplicable.  (Art. 
1567.) 


§  355  N.  Y.  ACT  AND  U.  S.  REGULATIONS  241 

Determination  of  gain  or  loss  from  subsequent  sale. — The  new  stock 
and  securities  received  as  described  in  the  preceding  article  take  the  place 
of  the  old  stock  and  securities.  For  the  purpose,  therefore,  of  ascertaining 
the  gain  derived  or  loss  sustained  from  the  subsequent  sale  of  any  stock  of 
A  or  of  the  consolidated  corporation  so  received,  the  original  cost  to  the 
taxpayer  or  the  fair  market  value  as  of  March  1,  1913,  of  the  stock  of 
B  or  A  in  respect  of  which  the  new  stock  was  issued,  less  any  untaxed 
distribution  made  to  the  taxpayer  by  A  out  of  the  former  capital  or  surplus 
of  B,  or  by  the  consolidated  corporation  out  of  the  former  capital  or  surplus 
of  A  or  B,  is  the  basis  for  determining  the  amount  of  such  gain  or  loss. 
Similarly,  the  cost  after  reorganization,  merger  or  consolidation  of  the 
assets  of  A  or  of  the  consolidated  corporation  is  the  sum  of  the  cost  (or  the 
fair  market  value  as  of  March  1,  1913)  of  the  assets  of  A  and  of  B  for 
the  purpose  of  ascertaining  the  gain  or  loss  upon  a  subsequent  sale.  The 
new  invested  capital  of  A  or  of  the  consolidated  corporation  is  to  be  de- 
termined as  if  A  and  B  were  rendering  a  consolidated  return  as  affiliated 
corporations.  (Art.  1568.) 

Gain  through  exchange. 

SEC.  355,  Gain  through  exchange.  When  in  the  case  of  any 
such  reorganization,  merger  or  consolidation  the  aggregate  par  or 
face  value  of  the  new  stock  or  securities  received  is  in  excess  of  the 
aggregate  par  or  face  value  of  the  stock  or  securities  exchanged,  a 
like  amount  in  par  or  face  value  of  the  new  stock  or  securities 
received  shall  be  treated  as  taking  the  place  of  the  stock  or  secur- 
ities exchanged,  and  the  amount  of  the  excess  in  par  or  face  value 
shall  be  treated  as  a  gain  to  the  extent  that  the  fair  market  value 
of  the  new  stock  or  securities  is  greater  than  the  cost  of  the  stock 
or  securities  exchanged,  if  acquired  on  or  after  January  first,  nine- 
teen hundred  and  nineteen,  and  its  fair  market  price  or  value  as  of 
January  first,  nineteen  hundred  and  nineteen,  if  acquired  before 
that  date. 

(Source:  Fed.  Rev.  Act  1918,  §  202- 6,  2nd  sentence.) 

Exchange  of  stock  for  other  stock  of  greater  par  value. — If  in  the 

case  of  any  reorganization,  merger  or  consolidation  the  aggregate  par  or 
face  value  of  the  new  stock  or  securities  received  is  in  excess  of  the  aggre- 
gate par  or  face  value  of  the  stock  and  securities  exchanged,  income  will 
be  realized  from  the  transaction  by  the  recipients  of  the  new  stock  or  se- 
curities to  an  amount  limited  by  (a)  the  excess  of  the  par  or  face  value 
of  the  new  stock  or  securities  over  the  par  or  face  value  of  the  old  and  (&) 
the  excess  of  the  fair  market  value  of  the  new  stock  or  securities  over  the 
cost  or  fair  market  value  as  of  March  1,  1913,  of  the  old.  In  other  words, 


242  TAX   ON    PEESONAL    INCOMES  §  356 

the  taxable  profit  will  be  (a)  or  (6),  whichever  is  less.  Upon  a  sub- 
sequent sale  of  the  new  stock  or  securities  their  cost  to  the  taxpayer  will 
be  the  cost  or  fair  market  value  as  of  March  1,  1913,  of  the  old  stock  and 
securities,  plus  the  profit  taxed  on  the  exchange.  (Art.  1569.) 

Readjustment  of  partnership  interests. — When  a  partner  retires  from 
a  partnership,  or  it  is  dissolved,  he  realizes  a  gain  or  loss  measured  by  the 
difference  between  the  price  received  for  his  interest  and  the  cost  to  him  or 
(if  acquired  prior  thereto)  the  fair  market  value  as  of  March  1,  1913,  of 
his  interest  in  the  partnership,  including  in  such  cost  or  value  the  amount 
of  his  share  in  any  undistributed  partnership  net  income  earned  since 
February  28,  1913,  on  which  the  income  tax  has  been  paid.  If,  however, 
the  partnership  distributes  its  assets  in  kind  and  not  in  cash,  the  partner 
realizes  no  gain  or  loss  until  he  disposes  of  the  property  received  on  dis- 
tribution. See  article  1566.  Whenever  a  new  partner  is  admitted  to  a 
partnership,  or  any  existing  partnership  is  reorganized,  the  facts  as  to 
such  change  or  reorganization  should  be  fully  set  forth  in  the  next  return 
of  income,  in  order  that  the  Commissioner  may  determine  whether  any 
gain  or  loss  has  been  realized  by  any  partner.  (Art.  1570.) 

Use  of  inventories. 

SEC.  356.  Inventory.  Whenever  in  the  opinion  of  the  comp- 
troller the  use  of  inventories  is  necessary  in  order  clearly  to  deter- 
mine the  income  of  any  taxpayer,  inventories  shall  be  taken  by  such 
taxpayer  upon  such  basis  as  the  comptroller  may  prescribe,  con- 
forming as  nearly  as  may  be  to  the  best  accounting  practice  in  the 
trade  or  business  and  most  clearly  reflecting  the  income,  and  con- 
forming so  far  as  may  be  to  the  forms  and  methods  prescribed  by 
the  United  States  commissioner  of  internal  revenue  under  the  act 
of  congress  known  as  the  revenue  act  of  nineteen  hundred  and 
eighteen. 

(Source:  Fed.  Rev.  Act  1918,  §  203.) 

Need  of  inventories. — In  order  to  reflect  the  net  income  correctly,  in- 
ventories at  the  beginning  and  ending  of  each  year  are  necessary  in  every 
case  in  which  the  production,  purchase  or  sale  of  merchandise  is  an  in- 
come-producing factor.  The  inventory  should  include  raw  materials  and 
supplies  on  hand  that  have  been  acquired  for  sale,  consumption  or  use  in 
productive  processes,  together  with  all  finished  or  partly  finished  goods. 
Title  to  the  merchandise  included  in  the  inventory  should  be  vested  in  the 
taxpayer  and  goods  merely  ordered  for  future  delivery  and  for  which  no 
transfer  of  title  has  been  effected  should  be  excluded.  The  inventory  should 
include  merchandise  sold  but  not  shipped  to  the  customer  at  the  date  of 
the  inventory,  together  with  any  merchandise  out  upon  consignment,  but 
if  such  goods  have  been  included  in  the  sales  of  the  taxable  year  they  should 


§  356  N.  Y.  ACT  AND  U.  S.  REGULATIONS  243 

not  be  taken  in  the  inventory.  It  should  also  include  merchandise  pur- 
chased, although  not  actually  received,  to  which  title  has  passed  to  the 
purchaser.  In  this  regard  care  should  be  exercised  to  take  into  the  ac- 
counts all  invoices  or  other  charges  in  respect  of  merchandise  properly 
included  in  the  inventory,  but  which  is  in  transit  or  for  other  reasons  has 
not  been  reduced  to  physical  possession.  (Reg.  45,  Rev.  Art.  1581.) 

Valuation  of  inventories. — Inventories  should  be  valued  at  (a.)  cost 
or  (&)  cost  or  market  whichever  is  lower.  Whichever  basis  is  adopted 
must  be  applied  to  each  item  and  not  merely  to  the  total  of  the  inventory; 
that  is,  if  for  instance  basis  (6)  is  adopted,  the  value  of  each  item  in 
the  inventory  will  be  measured  by  market  if  that  is  lower  than  cost,  or  by 
cost  if  that  is  lower  than  market.  A  taxpayer  may,  regardless  of  his 
past  practice,  adopt  the  basis  of  cost  or  market,  whichever  is  lower,  for 
his  1918  inventory,  provided  a  disclosure  of  the  fact  and  that  it  represents 
a  change  is  made  in  the  return.  Thereafter  changes  can  be  made  only  after 
permission  is  secured  from  the  Commissioner.  But  see  article  1585  for 
inventories  by  dealers  in  securities.  Inventories  should  be  recorded  in  a 
legible  manner  and  properly  computed  and  summarized,  and  should  be  pre- 
served as  a  part  of  the  accounting  records  of  the  taxpayer.  Goods  taken  in 
the  inventory  which  have  been  so  intermingled  that  they  can  not  be  iden- 
tified with  specific  invoices  will  be  deemed  to  be  the  goods  most  recently 
purchased.  (Art.  1582.) 

Inventories  at  cost. — Cost  means: 

(1)  In  the  case  of  merchandise  purchased,  the  invoice  price  less  trade 
or   other   discounts   except   strictly  cash   discounts   approximating   a   fair 
interest  rate,  which  may  be  deducted  or  not  at  the  option  of  the  taxpayer 
provided  a  consistent  course  is  followed.     To  this  net  invoice  price  should 
be  added  transportation  or  other  necessary  charges  incurred  in  acquiring 
possession  of  the  goods. 

(2)  In  the  case  of  merchandise  produced  by  the  taxpayer,   (a)   the  cost 
of  raw  materials  and  supplies  entering  into  or  consumed  in  connection  with 
the  product,   (6)   expenditures  for  direct  labor,   (c)   indirect  expenses  inci- 
dent to  and  necessary  for  the  production  of  the  particular  article,  includ- 
ing in  such  indirect  expenses  a  reasonable  proportion  of  management  ex- 
penses, but  not  including  any  cost  of  selling  or  return  on  capital  whether 
by  way  of  interest  or  profit.    In  any  industry  in  which  the  usual  rules  for 
computation  of  cost  of  production  are  inapplicable,  costs  may  be  approxi- 
mated upon  such  basis  as  may  be  reasonable  and  in  conformity  with  es- 
tablished trade  practice  in  the  particular  industry.     (Art.  1583.) 

Inventories  at  market. — Market  means  the  current  bid  price  prevailing 
at  the  date  of  the  inventory  for  the  particular  merchandise,  and  is  ap- 
plicable to  goods  purchased  and  on  hand  and  to  basic  materials  in  goods 
in  process  of  manufacture  and  in  finished  goods  on  hand,  exclusive,  how- 
ever, of  goods  on  hand  or  in  process  of  manufacture  for  delivery  upon 
firm  sales  contracts  at  fixed  prices  entered  into  before  the  date  of  the 
inventory.  Where  no  open  market  quotations  are  available  the  tax- 
payer must  use  such  evidence  of  a  fair  market  price  at  the  date  or  dates 


244  TAT   ON  PERSONAL  INCOMES  §  356 

nearest  the  inventory  as  may  be  available  to  him,  such  as  specific  transac- 
tions in  reasonable  volume  entered  into  in  good  faith,  or  compensation 
paid  for  cancellation  of  contracts  for  purchase  commitments.  The  bur- 
den of  proof  will  rest  upon  the  taxpayer  in  each  case  to  satisfy  the  Com- 
missioner of  the  correctness  of  the  prices  adopted.  It  is  recognized  that  in 
the  latter  part  of  1918,  by  reason  among  other  things  of  governmental 
control  not  having  been  relinquished,  conditions  were  abnormal  and  in 
many  commodities  there  was  no  such  scale  of  trading  as  to  establish  a  free 
market.  In  such  a  case,  when  a  market  has  been  established  during  the 
succeeding  year,  a  claim  may  be  filed  for  any  loss  sustained  in  accordance 
with  the  provisions  of  section  214  (a)  (12)  or  section  234  (a)  (14)  of 
the  statute.  (Art.  1584.) 

Inventories  by  dealers  in  securities. — A  dealer  in  securities,  who  in 
his  books  of  account  regularly  inventories  unsold  securities  on  hand  either 
(a)  at  cost  or  (6)  at  cost  or  market  value  whichever  is  lower,  may 
make  his  return  upon  the  basis  upon  which  his  accounts  are  kept;  pro- 
vided that  a  description  of  the  method  employed  shall  be  included  in  or 
attached  to  the  return,  that  all  the  securities  must  be  inventoried  by  the 
same  method,  and  that  such  method  must  be  adhered  to  in  subsequent 
years,  unless  another  be  authorized  by  the  Commissioner.  For  the  pur- 
pose of  this  rule  a  dealer  in  securities  is  a  merchant  of  securities,  whether 
an  individual,  partnership  or  corporation,  with  an  established  place  of 
business,  regularly  engaged  in  the  purchase  of  securities  and  their  resale 
to  customers,  that  is,  one  who  as  a  merchant  buys  securities  and  sells 
them  to  customers  with  a  view  to  the  gains  and  profits  that  may  be  de- 
rived therefrom.  If  such  business  is  simply  a  branch  of  the  activities 
carried  on  by  such  person,  the  securities  inventoried  as  here  provided  may 
include  only  those  held  for  purposes  of  resale  and  not  for  investment. 
Taxpayers  who  buy  and  sell  or  hold  securities  for  investment  or  specula- 
tion, and  not  in  the  course  of  an  established  business,  and  officers  of  cor- 
porations and  members  of  partnerships,  who  in  their  individual  capac- 
ities buy  and  sell  securities,  are  not  dealers  in  securities  within  the 
meaning  of  this  rule.  (Art.  1585.) 

T.  D.  2609,  issued  under  date  of  December  19,  1917,  authorizes  dealers 
in  merchandise  and  dealers  in  securities  to  make  their  income-tax  and 
excess-profits  tax  returns  upon  the  basis  of  inventories  taken  "at  cost 
or  at  market  price,  whichever  is  lower." 

The  legality  of  this  authorization  having  been  questioned,  the  matter 
was  referred  to  the  Attorney  General,  who  advises  that  the  general  prin- 
ciple at  issue  is  involved  in  cases  pending  in  the  Supreme  Court  of  the 
United  States  and  that  an  early  decision  may  be  reasonably  expected. 
Pending  this  decision  returns  made  upon  the  basis  of  T.  D.  2609  will  be 
tentatively  accepted. 

If  the  ruling  of  the  Attorney  General  should  be  adverse  to  the  prin- 
ciple enunciated  in  the  Treasury  decision  referred  to,  dealers  in  mer- 
chandise or  in  securities  who  shall  have  made  returns  on  the  basis  of  in- 
ventories taken  at  a  value  other  than  cost  will  be  required  to  make 


§  358  N.  Y.  ACT  AND  U.  S.  REGULATIONS  245 

amended  returns  upon  the  basis  of  inventories  taken  at  cost.  In  making 
their  returns  in  the  first  instance,  for  the  taxable  year  1917,  dealers 
in  merchandise  or  in  securities  will  be  required  to  indorse  upon  or  attach 
to  such  returns  a  statement  specifying  the  basis  upon  which  the  inven- 
tories were  taken,  whether  at  cost  or  market  price.  (T.  D.  2649,  Feb. 
16,  1918.) 

Net  income  defined. 

SEC.  357.  Net  income  defined.  The  term  "net  income"  means 
the  gross  income  of  a  taxpayer  less  the  deductions  allowed  by  this 
article. 

(Source:  Fed.  Rev.  Act  1918,  §  212-a.) 

Meaning  of  net  income. — The  tax  imposed  by  the  statute  is  upon  in- 
come. In  the  computation  of  the  tax  various  classes  of  income  must  be 
considered:  (a)  Income  (in  the  broad  sense),  meaning  all  wealth  which 
flows  in  to  the  taxpayer  other  than  as  a  mere  return  of  capital.  It 
includes  the  forms  of  income  specifically  described  as  gains  and  profits, 
including  gains  derived  from  the  sale  or  other  disposition  of  capital 
assets.  It  is  not  limited  to  cash  alone,  for  the  statute  recognizes  as  in- 
come-determining factors  other  items,  among  which  are  inventories,  ac- 
counts receivable,  property  exhaustion  and  accounts  payable  for  ex- 
penses incurred.  See  sections  202,  203,  213  and  214  of  the  statute.  (6) 
Gross  income,  meaning  income  (in  the  broad  sense)  less  income  which 
is  by  statutory  provision  or  otherwise  exempt  from  the  tax  imposed 
by  the  statute.  See  section  213  and  articles  71-86.  (c)  Net  income, 
meaning  gross  income  less  statutory  deductions.  The  statutory  deduc- 
tions are  in  general,  though  not  exclusively,  expenditures,  other  than 
capital  expenditures,  connected  with  the  production  of  income.  See  sec- 
tions 214  and  215  and  the  articles  thereunder.  (d)  Net  income  less 
credits.  See  section  216  and  articles  301-307.  Though  taxable  net  income 
is  wholly  a  statutory  conception  it  follows,  subject  to  certain  modifications 
as  to  exemptions  and  as  to  some  of  the  deductions,  the  lines  of  commer- 
cial usage.  Subject  to  these  modifications  statutory  "net  income"  is  com- 
mercial "net  income."  This  appears  from  the  fact  that  ordinarily  it  ia 
to  be  computed  in  accordance  with  the  method  of  accounting  regularly 
employed  in  keeping  the  books  of  the  taxpayer.  (Reg.  45,  Rev.  Art.  21.) 

Computation  of  net  income. 

SEC.  358.  Computation  of  net  income.  1.  The  net  income  shall 
be  computed  upon  the  basis  of  the  taxpayer's  annual  accounting 
period  (fiscal  year  or  calendar  year  as  the  case  may  be)  in  accord- 
ance with  the  method  of  accounting  regularly  employed  in  keeping 
the  books  of  such  taxpayer;  but  if  no  such  method  of  accounting 
has  been  so  employed,  or  if  the  method  employed  does  not  clearly 


246  TAX   ON   PERSONAL   INCOMES  §  358 

reflect  the  income,  the  computation  shall  be  made  upon  such  basis 
and  in  such  manner  as  in  the  opinion  of  the  comptroller  does 
clearly  reflect  the  income.  If  the  taxpayer's  annual  accounting 
period  is  other  than  a  fiscal  year  as  defined  in  this  article,  or  if 
the  taxpayer  has  no  annual  accounting  period  or  does  not  keep 
books,  the  net  income  shall  be  computed  on  the  basis  of  the  calen- 
dar year. 

2.  If  a  taxpayer  changes  his  accounting  period  from  fiscal  year 
to  calendar  year,  from  calendar  year  to  fiscal  year,  or  from  one 
fiscal  year  to  another,  the  net  income  shall,  with  the  approval  of 
the  comptroller,  be  computed  on  the  basis  of  such  new  accounting 
period,  subject  to  the  provisions  of  section  three  hundred  and 
seventy. 

(Source:  Fed.  Rev.  Act  1918,  §  221-&.  See  also  §  350-4— Definition  of 
taxable  year.) 

Computation  of  net  income. — Net  income  must  be  computed  with 
respect  to  a  fixed  period.  Usually  that  period  is  twelve  months  and  is 
known  as  the  taxable  year.  Items  of  income  and  of  expenditures  which 
as  gross  income  and  deductions  are  elements  in  the  computation  of  net 
income  need  not  be  in  the  form  of  cash.  It  is  sufficient  that  such  items, 
if  otherwise  properly  included  in  the  computation,  can  be  valued  in  terms 
of  money.  The  time  as  of  which  any  item  of  gross  income  or  any  deduc- 
tion is  to  be  accounted  for  must  be  determined  in  the  light  of  the  funda- 
mental rule  that  the  computation  shall  be  made  in  such  a  manner  as 
clearly  reflects  the  taxpayer's  income.  If  the  method  of  accounting  regu- 
larly employed  by  him  in  keeping  his  books  clearly  reflects  his  income, 
it  is  to  be  followed  with  respect  to  the  time  as  of  which  items  of  gross 
income  and  deductions  are  to  be  accounted  for.  If  the  taxpayer  does  not 
regularly  employ  a  method  of  accounting  which  clearly  reflects  his  in- 
come, the  computation  shall  be  made  in  such  manner  as  in  the  opinion 
of  the  Commissioner  clearly  reflects  it.  (Reg.  45,  Rev.  Art.  22.) 

Bases  of  computation. — Approved  standard  methods  of  accounting  will 
ordinarily  be  regarded  as  clearly  reflecting  income.  A  method  of  ac- 
counting will  not,  however,  be  regarded  as  clearly  reflecting  income  un- 
less all  items  of  gross  income  and  all  deductions  are  treated  with  rea- 
sonable consistency.  See  section  200  of  the  statute  for  definitions  of 
"paid,'*  "paid  or  accrued,"  and  "paid  or  incurred."  (§  350-6  of  State 
law.)  All  items  of  gross  income  shall  be  included  in  the  gross  income 
for  the  taxable  year  in  which  they  are  received  by  the  taxpayer,  and  de- 
ductions taken  acordingly,  unless  in  order  clearly  to  reflect  income 
such  amounts  are  to  be  properly  accounted  for  as  of  a  different  period. 
See  section  213  (a)  of  the  statute.  A  taxpayer  is  deemed  to  have  re- 


§  358  N.  Y.  ACT  AND  TJ.  S.  REGULATIONS  247 

ceived  items  of  gross  income  which  have  been  credited  to  or  set  apart  for 
him  without  restriction.  See  article  53.  On  the  other  hand,  apprecia- 
tion in  value  of  property  is  not  even  an  accrual  of  income  to  a  tax- 
payer prior  to  the  realization  of  such  appreciation  through  conversion 
of  the  property.  The  return  of  income  shall  in  every  case  be  made  on 
the  basis  clearly  reflecting  the  income,  including  such  items  of  income 
and  deductions  as  properly  would  have  been  included  in  the  return  for 
the  preceding  taxable  year  had  the  present  basis  been  used,  but  which 
were  not  so  included,  and  excluding  such  items  of  income  and  deductions  as 
would  have  been  excluded  from  the  return  for  the  preceding  taxable 
year  had  the  present  basis  been  used,  but  which  were  in  fact  included. 
A  separate  statement  shall  be  attached  to  the  return  showing  in  detail 
all  such  items  and  the  reasons  why  they  were  excluded  or  included  in 
the  return  for  the  preceding  taxable  year.  If  in  the  opinion  of  the 
Commissioner  the  net  effect  of  such  items  upon  the  net  income  for  the 
taxable  year  indicates  that  the  returns  for  any  previous  years  did  not 
approximately  reflect  the  true  income  for  such  years,  amended  returns 
for  such  years  may  be  required.  (Reg.  45,  Rev.  Art.  23.) 

Methods  of  accounting. — It  is  recognized  that  no  uniform  method 
of  accounting  can  be  prescribed  for  all  taxpayers,  and  the  law  contemplates 
that  each  taxpayer  shall  adopt  such  forms  and  systems  of  accounting  as 
are  in  his  judgment  best  suited  to  his  purpose.  Each  taxpayer  is  re- 
quired by  law  to  make  a  return  of  his  true  income.  He  must,  therefore, 
maintain  such  accounting  records  as  will  enable  him  to  do  so.  See  sec- 
tion 1305  of  the  statute  and  article  1711.  Among  the  essentials  are  the 
following : 

(1)  In   all   cases   in   which   the   production,   purchase  or   sale   of  mer- 
chandise of   any  kind   is   an    income-producing   factor    inventories   of   the 
merchandise  on  hand   (including  finished  goods,  work  in  process,  raw  ma- 
terials and  supplies)    should  be  taken  at  the  beginning   and  end  of  the 
year  and  used  in  computing  the  net  income  of  the  year; 

(2)  Expenditures    made    during    the   year    should    be    properly    classi- 
fied   as   between    capital    and   income,   that   is  to    say,    that    expenditures 
for   items  of  plant,   equipment,   etc.,  which  have   a  useful   life  extending 
substantially  beyond  the  year  should  be  charged  to  a  capital  account  and 
not  to  an  expense  account;  and 

(3)  In  any  case   in  which  the  cost  of  capital   assets  is   being  recov- 
ered through  deductions  for  wear  and  tear,  depletion  or  obsolescence  any 
expenditure    (other    than    ordinary    repairs)    made    to    restore    the    prop- 
erty or   prolong   its  useful   life   should  be   charged   against  the  property 
account    or    the   appropriate    reserve    and    not    against    current    expenses. 
(Art.  24.) 

Accounting  period. — The  return  of  a  taxpayer  is  made  and  his  income 
computed  for  his  taxable  year,  which  means  his  fiscal  year,  or  the 
calendar  year  if  he  has  not  established  a  fiscal  year.  The  term  "fiscal 
year"  means  an  accounting  period  of  twelve  months  ending  on  the  last 
day  of  any  month  other  than  December.  No  fiscal  year  will,  however,  be 


248  TAX   ON   PERSONAL  INCOMES  §  359 

recognized  unless  before  its  close  it  was  definitely  established  as  an  ac- 
counting period  by  the  taxpayer  and  the  books  of  such  taxpayer  were 
kept  in  accordance  therewith.  The  taxable  year  1918  is  the  calendar 
year  1918  or  any  fiscal  year  ending  during  the  calendar  year  1918.  See 
section  200  of  the  statute.  A  taxpayer  having  an  existing  accounting 
period  which  is  a  fiscal  year  within  the  meaning  of  the  statute  not  only 
needs  no  permission  to  make  his  return  on  the  basis  of  such  a  taxable 
year,  but  is  required  to  do  so,  regardless  of  the  former  basis  of  render- 
ing returns.  A  person  having  no  such  fiscal  year  must  make  return  on  the 
basis  of  the  calendar  year.  The  first  return  under  the  present  statute  of  a 
taxpayer  who  has  heretofore  made  return  on  a  basis  different  from  his 
accounting  period  will  necessarily  overlap  his  next  previous  return. 
(Art.  25.) 

Change  in  accounting  period. — If  a  taxpayer  changes  his  accounting 
period,  and  not  merely  his  taxable  year  to  conform  with  his  existing  ac- 
counting period,  he  shall  as  soon  as  possible  give  to  the  collector  for 
transmission  to  the  Commissioner  written  notice  of  such  change  and  of 
his  reasons  therefor.  The  Commissioner  will  not  approve  a  change  of 
the  basis  of  computing  net  income  unless  such  notice  is  given  at  a 
time  which  is  both  (a)  at  least  thirty  days  before  the  due  date  of  the 
taxpayer's  return  on  the  basis  of  his  existing  taxable  year  and  (&)  at 
least  thirty  days  before  the  due  date  of  his  return  on  the  basis  of  the 
proposed  taxable  year.  If  the  change  in  the  basis  of  computing  the  net 
income  of  the  taxpayer  is  approved  by  the  Commissioner,  the  taxpayer 
shall  thereafter  make  his  returns  upon  the  basis  of  the  new  accounting 
period  in  accordance  with  the  requirements  of  section  226  of  the  statute 
and  his  net  income  shall  be  computed  as  therein  provided.  (Art.  26.) 

Returns  when  accounting  period  changed. — No  return  can  be  made 
for  a  period  of  more  than  twelve  months.  A  separate  return  for  a  frac- 
tional part  of  a  year  is,  therefore,  required  wherever  there  is  a  change, 
with  the  approval  of  the  Commissioner,  in  the  basis  of  computing  net  in- 
come from  one  taxable  year  to  another  taxable  year  or  wherever  a  tax- 
payer making  his  first  return  of  income  does  so  on  the  basis  of  a  fiscal 
year.  The  periods  to  be  covered  by  such  separate  returns  in  the  several 
cases  are  stated  in  the  statute.  The  requirements  with  respect  to  the 
filing  of  a  separate  return  and  the  payment  of  tax  for  a  part  of  a  year 
are  the  same  as  for  the  filing  of  a  return  and  the  payment  of  tax  for  a 
full  taxable  year  closing  at  the  same  time.  The  tax  on  net  income  com- 
puted on  the  basis  of  the  period  for  which  a  separate  return  is  made 
shall  be  paid  thereon  at  the  rate  for  the  calendar  year  in  which  such 
period  is  included,  and  the  credits  for  personal  exemption  and  dependents 
shall  be  such  proportion  of  the  full  credits  as  the  number  of  months  in 
such  period  bears  to  twelve  months.  (Art.  431,  Reg.  45  Rev.) 

(See  also  §  370  of  State  Law,  page  — ,  infra.} 

Gross  income  defined:  what  it  includes. 

SEC.  359.    Gross  income  defined.    The  term  "gross  income" : 


§  359  N.  Y.  ACT  AND  U.  S.  REGULATIONS  249 

1.  Includes  gains,  profits  and  income  derived  from  salaries,  wages 
or  compensation  for  personal  service,  of  whatever  kind  and  in  what- 
ever form  paid,  or  from  professions,  vocations,  trades,  businesses, 
commerce,  or  sales,  or  dealings  in  property,  whether  real  or  per- 
sonal, growing  out  of  the  ownership  or  use  of  or  interest  in  such 
property;  also  from  interest,  rent,  dividends,  securities,  or  the 
transaction  of  any  business  carried  on  for  gain  or  profit,  or  gains 
or  profits  and  income  derived  from  any  source  whatever.  The 
amount  of  all  such  items  shall  be  included  in  the  gross  income  for 
the  taxable  year  in  which  received  by  the  taxpayer,  unless,  under 
the  methods  of  accounting  permitted  in  this  article,  any  such 
amounts  are  to  be  properly  accounted  for  as  of  a  different  period; 
but* 

(Source:  Fed.  Rev.  Act  1918,  §  213-a.  See  also  §  350-8,  supra— Divi- 
dends. ) 

Income  accruing  prior  to  March  i,  1913. — Property  held  by  the  tax- 
payer on  March  1,  1913,  is  capital.  Included  in  this  capital  are  all 
claims,  whether  evidenced  by  writing  or  not,  and  all  interest  which  had 
accrued  thereon  before  that  date.  Interest  accruing  on  or  after  that 
date  is  taxable  income.  Where  an  interest-bearing  claim  contracted  prior 
to  March  1,  1913,  is  paid  in  whole  or  in  part  after  that  date,  any  gain 
derived  from  the  conversion  of  the  claim  into  money  is  taxable.  The 
amount  of  such  gain  is  the  excess  of  the  proceeds  of  the  claim  (both  prin- 
cipal and  interest),  exclusive  of  any  interest  accrued  since  February  28, 
1913,  already  returned  as  income,  over  the  fair  market  value  of  the 
claim  as  of  March  1,  1913  (both  principal  and  interest  then  accrued).  In 
the  case  of  an  insurance  policy  its  surrender  value  as  of  March  1,  1913, 
may  be  used  as  a  basis  for  the  purpose  oi  ascertaining  the  gain  derived 
from  the  sale  or  other  disposition  of  such  policy.  Where  services  were 
rendered  prior  to  March  1,  1913,  but  paid  for  thereafter,  the  amount  re- 
ceived is  taxable  income  to  the  extent  of  the  excess  of  such  amount  over 
the  fair  market  value  on  March  1,  1913,  of  the  principal  of  the  claim 
and  any  interest  which  had  then  accrued.  A  claim  for  the  purpose  of  this 
article  means  a  right  existing  unconditionally  on  March  1,  1913,  and 
then  assignable,  whether  presently  payable  or  not.  Interest  does  not,  of 
course,  include  dividends  on  corporate  stock.  (Art.  87.) 

Note:  For  March  1,  1913,  inhere  it  occurs  in  the  Federal  statute  and 
regulations,  read  January  1,  1919,  in  the  New  York  Law. 

Compensation  for  personal  services. — Where  no  determination  of 
compensation  is  had  until  the  completion  of  the  services,  the  amount  re- 
ceived is  income  for  the  calendar  year  of  its  determination.  Commis- 

*  Note:   See   (2)    infra  for  what  gross  income  does  not  include. 


250  TAX   ON   PERSONAL   INCOMES  §  359 

sions  paid  salesmen,  compensation  for  services  on  the  basis  of  a  per- 
centage of  profits,  commissions  on  insurance  premiums,  tips,  retired  pay 
of  federal  and  other  officers,  and  pensions  or  retiring  allowances  paid  by 
tTie  United  States  or  private  persons,  are  income  to  the  recipients;  as  are 
also  marriage  fees,  baptismal  offerings,  sums  paid  for  saying  masses  for 
the  dead,  and  other  gifts  and  contributions  received  by  a  clergyman, 
evangelist  or  religious  worker  for  services  rendered.  The  salaries  of 
federal  officers  and  employees  are  subject  to  tax.  (Not,  however,  under 
the  State  law.)  (Reg.  45,  Rev.  Art.  32.) 

Commissions  on  insurance  premiums  include  commissions  on  renewal 
premiums.  (Art.  4,  Reg.  33,  Rev.,  Jan.  2,  1918)  ;  and  commission  re- 
tained by  the  agent  on  his  own  life  insurance  policy.  (T.  D.  2137,  Jan. 
30,  1915.) 

Special  compensation  (bonus)  when  compensation  for  services  ren- 
dered, must  be  included  in  the  personal  return  of  the  employee.  (T.  D. 
2152,  Feb.  12,  1915.) 

Salaries  paid  by  corporations  themselves  exempt,  are  subject  to  in- 
come tax.  (T.  D.  2090,  Dec.  14,  1914.) 

Services  paid  on  a  percentage  of  net  profits  is  income  to  employee. 
(Art.  4,  Reg.  33,  Jan.  4,  1918.) 

Compensation  paid  other  than  in  cash. — Where  services  are  paid 
for  with  something  other  than  money,  the  fair  market  value  of  the 
thing  taken  in  payment  is  the  amount  to  be  included  as  income.  If  the 
services  were  rendered  at  a  stipulated  price,  in  the  absence  of  evidence 
to  the  contrary  such  price  will  be  presumed  to  be  the  fair  value  of  the 
compensation  received.  Compensation  paid  an  employee  of  a  corpora- 
tion in  its  stock  is  to  be  treated  as  if  the  corporation  sold  the  stock  for 
its  market  value  and  paid  the  employee  in  cash.  When  living  quarters 
such  as  camps  are  furnished  to  employees  for  the  convenience  of  the  em- 
ployer, the  ratable  value  need  not  be  added  to  the  cash  compensation  of 
the  employee,  but  where  a  person  receives  as  compensation  for  services 
rendered  a  salary  and  in  addition  thereto  living  quarters,  the  value  to 
such  person  of  the  quarters  furnished  constitutes  income  subject  to  tax. 
Premiums  paid  by  an  employer  on  life,  accident  or  health  policies  in  favor 
of  his  employees  as  additional  compensation  of  such  employees  are  in- 
come to  the  employees.  (Art.  33.) 

Compensation  paid  in  notes. — Promissory  notes  received  in  payment 
for  services,  and  not  merely  as  security  for  such  payment,  constitute  in- 
come to  the  amount  of  their  fair  market  value.  A  taxpayer  receiving  as 
compensation  a  note  regarded  as  good  for  its  face  value  at  maturity,  but 
not  bearing  interest,  may  properly  treat  as  income  as  of  the  time  of  re- 
ceipt the  fair  discounted  value  of  the  note  at  such  time.  Thus,  if  it  ap- 
pears that  such  a  note  is  or  could  be  discounted  on  a  six  or  seven  per 
cent  basis,  the  recipient  may  include  such  note  in  his  gross  income  to  the 
amount  of  its  face  value  less  discount  computed  at  the  prevailing  rate 
for  such  transactions.  If  the  payments  due  on  a  note  so  accounted  for 
are  met  as  thev  become  due,  there  should  be  included  as  income  in  re- 


§  359  N.  Y.  ACT  AND  U.  S.  REGULATIONS  251 

spect  of  each  such  payment  so  much  thereof  as  represents  recovery  for 
the  discount  originally  deducted.      (Art.  34.) 

Gross  income  from  business. — In  the  case  of  a  manufacturing,  mer- 
chandising or  mining  business,  "gross  income"  means  the  total  sales, 
less  the  cost  of  goods  sold,  plus  any  income  from  investments  and  from 
incidental  or  outside  operations  or  sources.  In  determining  the  gross 
income  subtractions  should  not  be  made  for  depreciation,  depletion,  selling 
expenses  or  losses,  or  for  items  not  ordinarily  used  in  computing  the  cost 
of  goods  sold.  Gross  income  includes  all  amounts  received  by  the  tax- 
payer as  allowances  for  amortization,  from  whatever  source  and  by  what- 
ever name  called.  The  allowance  for  amortization  authorized  by  the 
statute  must  be  taken  by  way  of  explicit  deduction  from  gross  income. 
(Art.  35.) 

Long  term  contracts. — Persons  engaged  in  contracting  operations,  who 
have  uncompleted  contracts,  in  some  cases  perhaps  running  for  periods 
of  several  years,  will  be  allowed  to  prepare  their  returns  so  that  the 
gross  income  will  be  arrived  at  on  the  basis  of  completed  work;  that  is, 
on  jobs  which  have  been  finally  completed  any  and  all  moneys  received 
in  payment  will  be  returned  as  income  for  the  year  in  which  the  work 
was  completed.  If  the  gross  income  is  arrived  at  by  this  method,  the  de- 
duction from  gross  income  should  be  limited  to  the  expenditures  made  on 
account  of  such  completed  contracts.  Or  the  percentage  of  profit  from 
the  contract  may  be  estimated  on  the  basis  of  percentage  of  completion, 
in  which  case  the  income  to  be  returned  each  year  during  the  performance 
of  the  contract  will  be  computed  upon  the  basis  of  the  expenses  incurred 
on  such  contract  during  the  year;  that  is  to  say,  if  one-half  of  the  esti- 
mated expenses  necessary  to  the  full  performance  of  the  contract  are  in- 
curred during  one  year,  one-half  of  the  gross  contract  price  should  be 
returned  as  income  for  that  year.  Upon  the  completion  of  a  contract  if  it 
is  found  that  as  a  result  of  such  estimate  or  apportionment  the  income 
of  any  year  or  years  has  been  overstated  or  understated,  the  taxpayer 
should  file  amended  returns  for  such  year  or  years.  (Art.  36.) 

State  contracts. — Any  profit  received  from  a  State  or  political  sub- 
division thereof  by  an  independent  contractor  is  taxable  income.  Where 
warrants  are  issued  by  a  city,  town  or  other  political  subdivision  of  a 
State,  and  are  accepted  by  the  contractor  in  payment  for  public  work 
done,  the  face  value  of  such  warrants  must  be  returned  as  income.  If 
for  any  reason  the  contractor  upon  conversion  of  the  warrants  into  cash 
does  not  receive  and  can  not  recover  the  full  face  value  of  the  war- 
rants so  returned,  he  may  allowably  deduct  from  gross  income  for  the 
year  in  which  the  warrants  are  converted  into  cash  any  loss  sustained. 
(Art.  37.) 

Gross  income  of  farmers. — All  gains,  profits  and  income  derived 
from  the  sale  or  exchange  of  farm  products,  whether  produced  on  the 
farm  or  purchased  and  resold,  shall  be  included  in  the  return  of  income 
for  the  year  in  which  the  products  were  actually  marketed  and  sold, 


252  TAX   ON   PERSONAL   INCOMES  §  359 

unless  an  inventory  is  used.  In  case  of  the  sale  of  machinery,  and  of 
animals  purchased  as  draft  or  work  animals  or  solely  for  breeding  pur- 
poses and  not  for  resale,  any  excess  over  the  cost  thereof  reduced  by  all 
sums  theretofore  deducted  for  depreciation  shall  be  included  as  gross 
income  in  preparing  the  taxpayer's  return.  Where  farm  produce  is  ex- 
changed for  merchandise,  groceries  or  mill  products,  the  market  value  of 
the  article  or  product  received  in  exchange  is  to  be  returned  as  income. 
Rents  received  in  crop  shares  shall  be  returned  as  of  the  year  in  which 
the  crop  shares  are  reduced  to  money  or  a  money  equivalent.  If  a  farmer 
is  engaged  in  producing  crops  which  take  more  than  a  year  from  the 
time  of  planting  to  the  time  of  gathering  and  disposing,  the  income  there- 
from may  be  computed  upon  the  crop  basis;  but  in  any  such  case  the 
entire  cost  of  producing  the  crop  must  be  taken  as  a  deduction  in  the 
year  in  which  the  gross  income  from  the  crop  is  realized.  When  live  stock 
purchased  is  sold,  its  cost  is  to  be  deducted  from  the  sales  price  in  as- 
certaining the  amount  of  gain  or  profit  to  be  returned  for  tax  purposes. 
If,  however,  an  inventory  is  used,  the  cost  price  of  the  article  sold  must 
not  be  taken  as  an  additional  deduction  in  the  return  of  income,  as  such 
cost  price  will  be  reflected  in  the  inventory.  As  herein  used  the  term 
"farm"  embraces  the  farm  in  the  ordinarily  accepted  sense,  and  includes 
stock,  dairy,  poultry,  fruit  and  truck  farms,  also  plantations,  ranches  and 
all  land  used  for  farming  operations.  All  individuals,  partnerships  or 
corporations  that  cultivate,  operate  or  manage  farms  for  gain  or  profit, 
either  as  owners  or  tenants,  are  designated  farmers.  A  person  cultivating 
or  operating  a  farm  for  recreation  or  pleasure,  the  result  of  which  is  a 
continual  loss  from  year  to  year,  is  not  regarded  as  a  farmer.  A  farmer 
need  not  include  in  his  return  the  value  of  farm  produce  consumed  by 
himself  and  family.  (T.  D.  2665,  Mar.  8,  1918,  as  amended  by  S.  B.  C., 
Minn.,  1836,  Mar.  18,  1918.)  (Art.  38.) 

Sale  of  stock  and  rights. — When  shares  of  stock  in  a  corporation  are 
sold  from  lots  purchased  at  different  times  and  at  different  prices  and  the 
identity  of  the  lots  can  not  be  determined,  the  stock  sold  shall  be  charged 
against  the  earliest  purchases  of  such  stock.  The  excess  of  the  amount 
realized  on  the  sale  over  the  cost  of  the  stock,  or  its  fair  market  value  as 
of  March  1,  1913,  if  purchased  before  that  date,  will  be  the  profit  to  be 
accounted  for  as  income.  In  the  case  of  stock  received  as  a  stock  divi- 
dend, whether  or  not  paid  out  of  earnings  or  profits  accrued  since  Febru- 
ary 28,  1913,  and  in  the  case  of  stock  in  respect  of  which  any  such  divi- 
dend was  paid,  the  cost  of  each  share  of  such  stock  shall  be  ascertained  as 
specified  in  article  1547.  Where  common  stock  is  received  as  a  bonus 
with  the  purchase  of  preferred  stock  or  bonds,  the  total  purchase  price 
shall  be  fairly  apportioned  between  the  stock  and  securities  purchased 
for  the  purpose  of  determining  the  portion  of  the  consideration  attributable 
to  each  class  of  stock  or  securities  and  so  representing  its  cost,  but  if  that 
should  be  impracticable  in  any  case,  no  profit  on  any  subsequent  sale  of 
any  part  of  the  stock  or  securities  will  be  realized  until  out  of  the  pro- 
ceeds of  sales  shall  have  been  recovered  the  total  cost.  See  article 


§  359  N.  Y.  ACT  AND  U.  S.  REGULATIONS  253 

1565.  The  entire  amount  realized  from  the  sale  of  rights  to  subscribe  for 
stock  is  income.  (Art.  39.) 

Sale  of  patents  and  copyrights.— A  taxpayer  disposing  of  patents 
or  copyrights  by  sale  should  determine  the  profit  or  loss  arising  there- 
from by  computing  the  difference  between  the  selling  price  and  the  value 
as  of  March  1,  1913,  if  acquired  prior  to  that  date,  or  between  the  sell- 
ing price  and  the  cost,  if  acquired  subsequently  to  that  date.  The  profit 
or  loss  thus  ascertained  should  be  increased  or  decreased,  as  the  case 
may  be,  by  the  amounts  deducted  on  account  of  depreciation  of  such 
patents  or  copyrights  since  February  28,  1913,  or  since  the  date  of  acquisi- 
tion if  subsequently  thereto.  (Art.  40.) 

Sale  of  good  will.— Any  profit  or  loss  resulting  from  an  investment 
in  good  will  can  be  taken  only  when  the  business,  or  a  part  of  it,  to  which, 
the  good  will  attaches  is  sold,  in  which  case  the  profit  or  loss  will  be 
determined  upon  the  basis  of  the  cost  of  the  assets,  including  good  will, 
or  their  fair  market  value  as  of  March  1,  1913,  if  acquired  prior  thereto. 
If  nothing  was  paid  for  good  will  acquired  after  February  28,  1913,  no 
deductible  loss  is  possible,  although,  on  the  other  hand,  upon  the  sale 
of  the  business  there  may  be  a  profit.  It  is  immaterial  that  good  will  may 
never  have  been  carried  on  the  books  as  an  asset,  but  the  burden  of 
proof  is  on  the  taxpayer  to  establish  the  cost  or  fair  market  value  on 
March  1,  1913,  of  the  good  will  sold.  (Art.  41.) 

Sale  of  personal  property  on  installment  plan. — Dealers  in  personal 
property  ordinarily  sell  either  for  cash,  or  on  the  personal  credit  of  the 
buyer,  or  on  the  installment  plan.  Occasionally  a  fourth  type  of  sale  is 
met  with,  in  which  the  buyer  makes  an  initial  payment  of  such  a  substan- 
tial nature  (for  example,  a  payment  of  more  than  25  per  cent)  that  the 
sale,  though  involving  deferred  payments,  is  not  one  on  the  installment 
plan.  In  sales  on  personal  credit,  and  in  the  substantial  payment  type 
just  mentioned,  obligations  of  purchasers  are  to  be  regarded  as  the  equiva- 
lent of  cash,  but  a  different  rule  applies  to  sales  on  the  installment  plan. 
Dealers  in  personal  property  who  sell  on  the  installment  plan  usually 
adopt  one  of  four  ways  of  protecting  themselves  in  case  of  default:  (a) 
through  an  agreement  that  title  is  to  remain  in  the  seller  until  the 
buyer  has  completely  performed  his  part  of  the  transaction;  (6)  by  a 
form  of  contract  in  which  title  is  conveyed  to  the  purchaser  immediately, 
but  subject  to  a  lien  for  the  unpaid  portion  of  the  purchase  price;  (c) 
by  a  present  transfer  of  title  to  the  purchaser,  who  at  the  same  time 
executes  a  reconveyance  in  the  form  of  a  chattel  mortgage  to  the  seller; 
or  (d)  by  conveyance  to  a  trustee  pending  performance  of  the  con- 
tract and  subject  to  its  provisions.  The  general  purpose  and  effect  being 
the  same  in  all  of  these  plans,  it  is  desirable  that  a  uniformly  applicable 
rule  be  established.  The  rule  prescribed  is  that  in  the  sale  or  contract 
for  sale  of  personal  property  on  the  installment  plan,  whether  or  not  title 
remains  in  the  vendor  until  the  property  is  fully  paid  for,  the  income  to 
be  returned  by  the  vendor  will  be  that  proportion  of  each  installment  pay- 
ment which  the  gross  profit  to  be  realized  when  the  property  is  paid  for 


254  TAX   ON"   PERSONAL  INCOMES  §  359 

bears  to  the  gross  contract  price.  Such  income  may  be  ascertained 
by  taking  that  proportion  of  the  total  payments  received  in  the  taxable 
year  from  installment  sales  (always  including  payments  received  in  the 
taxable  year  on  account  of  sales  effected  in  earlier  years  as  well  as  those 
effected  in  the  taxable  year)  which  the  gross  profit  to  be  realized  on  the 
total  installment  sales  made  during  the  taxable  year  bears  to  the  gross 
contract  price  of  all  such  sales  made  during  the  taxable  year.  Where 
a  change  is  made  to  this  method  of  computing  net  income  the  tax- 
payer's balance  sheet  should  be  adjusted  conformably  as  of  the  date  when 
the  change  is  effected.  If  for  any  reason  the  vendee  defaults  in  any  of 
his  installment  payments  and  the  vendor  repossesses  the  property,  the 
entire  amount  received  on  installment  payments,  less  the  profit  already 
returned,  will  be  income  of  the  vendor  for  the  year  in  which  the  property 
was  repossessed,  and  the  property  repossessed  must  be  included  in  the  in- 
ventory at  its  original  cost  to  himself,  less  proper  allowance  for  damage 
and  use,  if  any.  If  the  vendor  chooses  as  a  matter  of  consistent  practice 
to  treat  the  obligations  of  purchasers  as  the  equivalent  of  cash,  such  a 
course  is  permissible.  (Art.  42.) 

Sale  of  real  estate  in  lots. — Where  a  tract  of  land  is  purchased  with 
a  view  to  dividing  it  into  lots  or  parcels  of  ground  to  be  sold  as  such, 
the  entire  fair  market  value  as  of  March  1,  1913,  or  the  cost,  if  ac- 
quired subsequently  to  that  date,  shall  be  equitably  apportioned  to  the 
several  lots  or  parcels  and  made  a  matter  of  record  in  the  books  of  the 
taxpayer,  to  the  end  that  any  gain  derived  from  the  sale  of  any  such 
lots  or  parcels  may  be  returned  as  income  for  the  year  in  which  the  sale 
was  made.  This  rule  contemplates  that  there  will  be  a  measure  of  gain 
or  loss  in  every  lot  or  parcel  sold,  and  not  that  the  capital  invested  in  the 
entire  tract  shall  be  extinguished  before  any  taxable  income  shall  be 
returned.  The  sale  of  each  lot  or  parcel  will  be  treated  as  a  separate 
transaction  and  the  gain  or  loss  will  be  accounted  for  accordingly.  (Art. 
43.) 

Sale  of  real  estate  involving  deferred  payments. — Deferred  payment 
sales  of  real  estate  ordinarily  fall  into  two  classes  when  considered  with 
respect  to  the  terms  of  sale,  as  follows: 

(1)  Installment  transactions,  in  which  the  initial  payment  is  relatively 
small   (generally  less  than  one-fourth  of  the  purchase  price)    and  the  de- 
ferred payments  usually  numerous  and  of  small  amount.    They  include  (a) 
sales  where  there  is  immediate  transfer  of  title  when  a  small  initial  pay- 
ment is  made,  the  seller  being  protected  by  a  mortgage  or  other  lien  as  to 
deferred  payments,  and    (&)    agreements  of  purchase  and  sale  which  con- 
template that  a  conveyance  is  not  to  be  made  at  the  outset,  but  only  after 
all  or  a  substantial  portion  of  the  agreed  installments  have  been  paid. 

(2)  Deferred  payment  sales  not  on  the  installment  plan,  in  which  there 
is  a  substantial  initial  payment    (ordinarily  not  less  than  one-fourth  of 
the  purchase  price),  deferred  payments  being  secured  by  a  mortgage  or 
other  lien.    Such  sales  are  distinguished  from  sales  on  the  installment  plan 


§  359  N.  T.  ACT  AND  U.  S.  REGULATIONS  255 

by  the  substantial  character  of  the  initial  payment  and  also  usually  by 
a  relatively  small  number  of  deferred  payments. 

In  determining  how  these  classes  shall  be  treated  in  levying  the  income 
tax,  the  question  in  each  case  is  whether  the  income  to  be  reported  for 
taxation  shall  be  based  only  on  amounts  actually  received  in  a  taxing 
year,  or  on  the  entire  consideration  made  up  in  part  of  agreements  to  pay 
in  the  future.  (Art.  44.) 

Sale  of  real  estate  on  installment  plan. — In  the  two  kinds  of  transac- 
tions included  in  class  ( 1 )  in  the  foregoing  article,  installment  obliga- 
tions assumed  by  the  buyer  are  not  ordinarily  to  be  regarded  as  the 
equivalent  of  cash,  and  the  vendor  may  report  as  his  income  from  such 
transactions  in  any  year  that  proportion  of  each  payment  actually  re- 
ceived in  that  year  which  the  gross  profit  to  be  realized  when  the  property 
is  paid  for  bears  to  the  gross  contract  price.  If  the  return  is  made  on 
this  basis  and  the  vendor  repossesses  the  property  after  default  by  the 
buyer,  retaining  the  previous  payments,  the  entire  amount  of  such  pay- 
ments, less  the  profit  previously  returned,  will  be  income  to  the  vendor 
and  will  be  so  returned  for  the  year  in  which  the  property  was  re- 
possessed, and  the  property  repossessed  must  be  included  in  the  inventory 
at  its  original  cost  to  himself  (less  any  depreciation  as  defined  in  articles 
161  and  162).  If  the  taxpayer  chooses  as  a  matter  of  settled  practice 
consistently  followed  to  treat  the  obligations  of  the  purchaser  as  equiva- 
lent to  cash  and  to  report  the  profit  derived  from  the  entire  consideration, 
cash  and  deferred  payments,  as  income  for  the  year  when  the  sale  is  made, 
this  is  permissible.  If  so  treated  the  rule  prescribed  in  article  46  will 
apply.  (Art.  45.) 

Deferred  payment  sales  of  real  estate  not  on  installment  plan. — In 

class  (2)  in  the  next  to  the  last  article  the  obligations  assumed  by  the 
buyer  are  much  better  secured  because  of  the  margin  afforded  by  the  sub- 
stantial first  payment,  and  experience  shows  that  the  greater  number  of 
such  sales  are  eventually  carried  out  according  to  their  terms.  These 
obligations  for  deferred  payments  are  therefore  to  be  regarded  as  equiva- 
lent to  cash,  and  the  profit  indicated  by  the  entire  consideration  is  tax- 
able income  for  the  year  in  which  the  initial  payment  was  made  and  the 
obligations  assumed.  If  the  buyer  defaults  and  the  seller  regains  title 
to  the  land  by  agreement  or  process  of  law,  retaining  payments  pre- 
viously made,  he  may  deduct  from  his  gross  income  as  a  loss  in  the  year 
of  repossession  any  excess  of  the  amount  previously  reported  as  income 
over  the  amount  actually  received,  and  must  include  such  real  estate  in 
his  inventory  at  its  original  cost  to  himself  (less  any  depreciation).  (Art. 
46.) 

Annuities  and  insurance  policies. — Annuities  paid  by  religious,  chari- 
table and  educational  corporations  under  an  annuity  contract  are  subject 
to  tax  to  the  extent  that  the  aggregate  amount  of  the  payments  to  the 
annuitant  exceeds  any  amounts  paid  by  him  as  consideration  for  the  con- 
tract. An  annuity  charged  upon  devised  land  is  income  taxable  to  the 
annuitant,  whether  paid  by  the  devisee  out  of  the  rents  of  the  land  or  from 


256  TAX   ON   PERSONAL   INCOMES  §  359 

other  sources.  The  devisee  is  not  required  to  return  as  taxable  income 
the  amount  of  rent  paid  to  the  annuitant,  and  he  is  not  entitled  to  deduct 
from  his  taxable  income  any  sums  paid  to  the  annuitant.  Where  an  in- 
sured receives  under  life  insurance,  endowment  or  annuity  contracts  sums 
in  excess  of  the  premiums  paid  therefor,  such  excess  is  income  for  the  year 
of  its  receipt.  See  article  72.  Distributions  on  paid-up  policies  which  are 
made  out  of  earnings  of  the  insurance  company  subject  to  tax  are  in  the 
nature  of  corporate  dividends  and  are  income  or  an  individual  only  for 
the  purpose  of  the  surtax.  (Art.  47.) 

Note:  There  is  no  surtax  under  the  ~New  York  Law,  and  dividends  are 
taxed  to  residents  as  incomes. 

Rent  and  royalties. — When  improvements  made  by  a  lessee  become 
part  of  the  real  estate,  the  value  of  such  improvements  upon  the  expira- 
tion of  the  existing  term  of  the  lease  is  income  to  the  lessor.  In  general, 
sums  paid  by  a  tenant  for  the  use  of  property,  although  to  another  than 
the  landlord,  are  properly  to  be  regarded  as  rent  and  constitute  income 
of  the  landlord.  See  further  article  109.  Royalties  on  patents  are  in- 
come. (Art.  48.) 

Rent  not  paid  in  money.— Amounts  expended  by  tenants  for  taxes 
and  necessary  repairs  under  agreement,  in  addition  to  a  stipulated  cash 
rental,  are  items  of  taxable  income,  and  as  such  should  be  reported  in 
the  return  of  the  landlord.  A  corresponding  amount  may  be  deducted  by 
the  landlord.  (Art.  4,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Board,  lodging  or  other  consideration  received  in  lieu  of  rental  is  con- 
sidered income  equal  in  amount  to  the  indebtedness  in  payment  of  which 
it  is  received,  and  should  be  included  in  any  return  of  annual  net  income 
its  recipient  is  required  to  render  under  the  provisions  of  the  income-tax 
law.  (T.  D.  2135,  Jan.  23,  1915.) 

Compensation  for  loss. — In  the  case  of  property  which  has  been  lost 
or  destroyed  in  whole  or  in  part  through  fire,  storm,  shipwreck  or  other 
casualty,  or  where  the  owner  of  property  has  lost  or  transferred  title  by 
reason  of  the  exercise  of  the  power  of  requisition  or  eminent  domain, 
including  cases  where  a  voluntary  transfer  or  conveyance  is  induced  by 
reason  of  the  fact  that  a  technical  requisition  or  condemnation  proceeding- 
is  imminent,  the  amount  received  by  the  owner  as  compensation  for  the 
property  may  show  an  excess  over  the  value  of  the  property  on  March  1, 
1913,  or  over  its  cost,  if  it  was  acquired  after  that  date  (after  making 
proper  provision  in  either  case  for  depreciation  to  the  date  of  the  loss, 
damage  or  transfer).  The  transaction  is  not  regarded  as  completed  at  this 
stage,  however,  if  the  taxpayer  proceeds  immediately  in  good  faith  to 
replace  the  property,  or  if  he  makes  application  to  establish  a  replacement 
fund  as  provided  in  the  following  article.  In  such  a  case  the  gain,  if  any, 
is  measured  by  the  excess  of  the  amount  received  over  the  amount  actually 
and  reasonably  expended  to  replace  or  restore  the  property  substantially 
in  kind,  exclusive  of  any  expenditures  for  additions  or  betterments.  The 
new  or  restored  property  effects  a  replacement  in  kind  only  to  the  extent 
that  it  serves  the  same  purpose  as  the  property  which  it  replaces  without 


§  359  N.  Y.  ACT  AND  U.  S.  REGULATIONS  257 

added  capacity  or  other  element  of  additional  value.  Such  new  or  restored 
property  shall  not  be  valued  in  the  accounts  of  the  taxpayer  at  an  amount 
in  excess  of  the  cost  or  value  at  March  1,  1913,  if  acquired  before  that 
date  (after  making  proper  provision  in  either  case  for  depreciation  to  the 
date  of  the  loss,  damage  or  transfer),  of  the  original  property,  plus  the 
cost  of  any  actual  additions  and  betterments.  If  the  taxpayer  does  not 
elect  to  replace  or  restore  the  property,  the  transaction  will  then  be  deemed 
to  be  completed  and  the  income  shall  be  measured  by  the  excess  of  the 
amount  of  the  compensation  received  over  the  cost  of  the  property  or  its 
actual  value  at  March  1,  1913,  if  acquired  before  that  date  (after  making 
proper  provision  in  either  case  for  depreciation  to  the  date  of  the  loss, 
damage  or  transfer).  Articles  49  and  50  have  no  application  to  property 
which  is  voluntarily  sold  or  disposed  of.  (Art.  49.) 

Replacement  fund  for  loss. — In  any  case  in  which  the  taxpayer  elects 
to  replace  or  restore  the  lost,  damaged  or  transferred  property,  but  where 
it  is  not  practicable  to  do  so  immediately,  he  may  obtain  permission  to 
establish  a  replacement  fund  in  his  accounts  in  which  the  entire  amount 
of  the  compensation  so  received  shall  be  held,  without  deduction  for  the 
payment  of  any  mortgage,  and  pending  the  disposition  thereof  the  account- 
ing for  gain  or  loss  thereupon  may  be  deferred  for  a  reasonable  period  of 
time,  to  be  determined  by  the  Commissioner.  In  such  a  case  the  taxpayer 
should  make  application  to  the  Commissioner  on  form  1114  for  permission 
to  establish  such  a  replacement  fund  and  in  his  application  should  recite 
all  the  facts  relating  to  the  transaction  and  undertake  that  he  will  pro- 
ceed as  expeditiously  as  possible  to  replace  or  restore  such  property.  The 
taxpayer  will  be  required  to  furnish  a  bond  with  such  surety  as  the  Com- 
missioner may  require  for  an  amount  not  less  than  the  estimated  addi- 
tional income  and  war  profits  and  excess  profits  taxes  assessable  by  the 
United  States  upon  the  income  so  carried  to  the  replacement  fund.  See 
section  1320  of  the  statute.  The  estimated  additional  taxes,  for  the 
amouht  of  which  the  claimant  is  required  to  furnish  security,  should  be 
computed  at  the  rates  at  which  the  claimant  would  have  been  obliged  to 
pay,  taking  into  consideration  the  remainder  of  his  net  income  and  resolv- 
ing against  him  all  matters  in  dispute  affecting  the  amount  of  the  tax. 
Only  surety  companies  holding  certificates  of  authority  from  the  Secretary 
of  the  Treasury  as  acceptable  sureties  on  federal  bonds  will  be  approved 
as  sureties.  The  application  should  be  executed  in  triplicate,  so  that  the 
Commissioner,  the  applicant  and  the  surety  or  depositary  may  each  have 
a  copy.  (Art.  50.) 

Forgiveness  of  indebtedness. — The  cancellation  and  forgiveness  of 
indebtedness  is  dependent  on  the  circumstances  for  its  effect.  It  may 
amount  to  a  payment  of  income  or  to  a  gift  or  to  a  capital  transaction. 
If,  for  example,  an  individual  performs  services  for  a  creditor,  who  in  con- 
sideration thereof  cancels  the  debt,  income  to  that  amount  is  realized  by 
the  debtor  as  compensation  for  his  services.  If,  however,  a  creditor  merely 
desires  to  benefit  a  debtor  and  without  any  consideration  therefor  cancels 
the  debt,  the  amount  of  the  debt  is  a  gift  from  the  creditor  to  the  debtor 


258  TAX  ON   PERSONAL  INCOMES  §  359 

and  need  not  be  included  in  the  latter's  gross  income.  If  a  stockholder 
in  a  corporation  which  is  indebted  to  him  gratuitously  forgives  the  debt, 
the  transaction  amounts  to  a  contribution  to  the  capital  of  the  corpora- 
tion. If,  however,  a  corporation  to  which  a  stockholder  is  indebted  for- 
gives the  debt,  the  transaction  has  the  effect  of  the  payment  of  a  dividend. 
(Art.  51.) 

When  included  in  gross  income. — Gains,  profits  and  income  are  to  be 
included  in  the  gross  income  for  the  taxable  year  in  which  they  are  received 
by  the  taxpayer,  unless  they  are  included  when  they  accrue  to  him  in 
accordance  with  the  approved  method  of  accounting  followed  by  him.  See 
articles  21-24.  Lands  which  are  received  as  compensation  for  services  in 
one  year,  the  title  to  which  is  disputed  and  in  a  later  year  adjudged  to 
be  valid,  constitute  income  to  the  grantee  in  the  former  year.  On  the 
other  hand,  a  person  may  sue  in  one  year  on  a  pecuniary  claim  or  for 
property,  but  money  or  property  recovered  on  a  judgment  therefor  ren- 
dered in  a  later  year  would  be  income  in  that  year,  assuming  that  it  would 
have  been  income  in  the  earlier  year  if  then  received.  This  is  true  of  a 
recovery  for  patent  infringement.  Bad  debts  or  accounts  charged  off 
because  of  the  fact  that  they  were  determined  to  be  worthless,  which  are 
subsequently  recovered,  whether  or  not  by  suit,  constitute  income  for  the 
year  in  which  recovered,  regardless  of  the  date  when  the  amounts  were 
charged  off.  See  articles  111  and  151.  In  view  of  the  unusual  conditions 
prevailing  at  the  close  of  the  year  1918  it  is  recognized  that  many  items 
of  gross  income,  such  as  claims  for  compensation  under  cancelled  con- 
tracts, together  with  claims  against  contracting  departments  of  the  Gov- 
ernment for  amortization  and  other  matters,  while  properly  constituting 
gross  income  for  the  taxable  year  1918  were  undecided  and  not  sufficiently 
definite  in  amount  to  be  reported  in  the  original  return  for  that  year.  In 
every  such  case  the  taxpayer  should  attach  to  his  return  a  full  statement 
of  such  pending  claims  and  other  matters,  and  when  the  correct  amount 
of  such  items  is  ascertained  an  amended  return  for  the  taxable  year  1918 
should  be  filed.  (Art.  52.) 

Where  the  service  and  payment  period  is  divided  by  the  end  of  the  tax- 
able year,  the  compensation  for  the  period  so  divided  at  the  end  of  the 
year  will  be  accounted  for  as  income  for  the  year  in  which  payment  is 
actually  received.  Where  the  service  is  compensated  by  fee,  or  is  of  such 
nature  that  no  part  of  the  fee  or  compensation  becomes  due  until  the  com- 
pletion of  the  service,  the  entire  amount  received  should  be  income  to  be 
accounted  for  as  for  the  year  of  receipt. 

A  person  having  a  salary  by  the  year  and  in  addition  commissions  on 
sales,  the  salary  to  be  paid  at  the  time  commissions  are  determined,  and 
the  determination  of  commissions  is  in  the  succeeding  calendar  year,  the 
entire  amount  of  salary  and  commissions  should  be  accounted  for  as  income 
of  the  calendar  year  of  receipt.  (Art.  4,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Compensation  for  services  as  trustees. — If  no  determination  was  made 
of  the  amount  due  the  trustee  of  an  estate  as  compensation  for  his  services 
over  a  period  of  years  until  the  trust  was  terminated,  the  amount  allowed 


§  359  N.  Y.  ACT  AND  U.  S.  REGULATIONS  259 

him  should  be  returned  in  full,  subject  to  allowable  deductions,  as  income 
for  the  year  in  which  paid;  and  should  not  be  prorated  over  the  length  of 
time  during  which  he  served  as  trustee.  (T.  D.  2135,  Jan.  23,  1915.) 

Rent  is  returnable  as  income  in  year  received. — This  office  is  in  re- 
ceipt of  your  letter  of  February  18,  1915,  and  in  reply  thereto  you  are 
advised  that  the  amount  of  rental  received  from  a  piece  of  real  property 
should  be  included  in  any  personal  annual  return  of  net  income  the  land- 
lord may  be  required  to  render  for  the  year  in  which  received,  and  deduc- 
tion may  be  claimed  on  account  of  any  expense  incurred  in  the  main- 
tenance of  the  said  property,  or  its  use,  for  rental  purposes,  including 
amounts  paid  for  repairs,  insurance,  fuel,  light  and  water,  and  janitor 
and  elevator  service,  if  any,  and  in  addition  thereto  an  amount  represent- 
ing a  reasonable  allowance  for  the  wear  and  tear  of  the  property  arising 
from  its  use  for  rental  purposes  may  be  claimed  as  a  deduction,  but  no 
claim  for  depreciation  should  be  made  on  account  of  any  amount  of  expense 
of  restoring  property  or  making  good  the  exhaustion  thereof  for  which  a 
deduction  is  claimed  elsewhere  in  the  return.  (Letter  to  The  Corporation 
Trust  Company  signed  by  Acting  Commissioner  David  A.  Gates,  and  dated 
February  26,  1915.) 

A  landlord  should  include  in  his  return  of  annual  net  income  the  rents 
actually  paid  to  him  within  the  year;  *  *  *  The  rent  paid  on  Jan- 
uary 5,  1915,  for  the  months  of  November  and  December,  1914,  belongs  to 
the  year  1915  for  *  *  *  the  purposes  of  return  by  the  land- 
lord *  *  *  "  (Extract  from  letter  to  Wm.  S.  Lare,  signed  by  Deputy 
Commissioner  L.  F.  Speer,  and  dated  February  9,  1915.) 

Accrued  interest  on  bonds  purchased  between  interest  dates. — Inter- 
est accrued  to  the  time  of  purchase  (advanced  by  purchaser)  is  not  to  be 
accounted  for  as  income  by  the  purchaser.  Only  the  amount  of  interest 
assignable  to  the  portion  of  the  interest  period  subsequent  to  the  purchase 
has  a  status  of  income  for  the  purposes  of  return  and  tax  by  purchaser. 

The  amount  of  accrued  interest  so  advanced  by  the  purchaser  is  taxable 
income  to  be  accounted  for  in  the  return  of  the  vendor.  (Art.  4,  Reg.  33, 
Rev.,  Jan.  2,  1918.) 

Interest  coupons  exchanged  for  new  bonds. — Coupons  from  bonds  for 
interest  thereon,  exchanged  for  other  bonds  are  held  to  be  the  equivalent 
of  payment  of  the  interest  coupons  and  purchase  of  the  new  bonds  with 
the  cash.  The  amount  of  the  coupons  to  be  accounted  for  as  income  for 
the  calendar  year  in  which  the  exchange  is  made.  (Art.  4,  Reg.  33,  Rev., 
Jan.  2,  1918.) 

Scrip  payment  of  interest. — The  foregoing  holds  true  for  scrip  pay- 
ment of  interest  [i.  e.,  the  scrip  is  gross  income].  (Art.  4,  Reg.  33,  Rev., 
Jan.  2,  1918.) 

Property  acquired  by  gift. — The  value  of  property  acquired  by  gift  is 
not  subject  to  income  tax,  but  all  gains,  profits,  or  income  derived  there- 
from are  subject  to  tax  and  if  the  property  so  acquired  is  subsequently 
sold  at  a  price  greater  than  the  appraised  value  at  the  time  the  property 


260  TAX   ON   PERSONAL   INCOMES  §  359 

was  acquired  by  gift,  the  gain  in  value  is  held  to  be  income  and  subject 
to  tax  under  the  provisions  of  the  Federal  income  tax  law.  (1.  D.  2090, 
Dec.  14,  1914.) 

Legacies. — The  general  policy  of  the  law  and  rule  of  interpretation 
require  that  legacies  in  all  cases,  unless  clearly  inconsistent  with  the  inten- 
tion of  the  testator,  should  be  held  to  be  vested  rather  than  contingent. 
Where  there  is  a  vested  interest  the  income  from  such  interest,  whether 
distributed  or  not,  is  subject  to  the  tax;  and  when  in  the  hands  of  fidu- 
ciaries they  are  required  to  account  for  and  pay  the  tax  thereon.  (T.  D. 
2090,  Dec.  14,  1914.) 

Interest  on  bonds  received  by  legatee. — A  legatee  is  required  to  re- 
turn as  income  the  full  amount  of  interest  received  by  him  on  a  bond, 
notwithstanding  the  fact  that  a  part  of  the  first  coupon,  payable  after  he 
had  received  it,  had  been  added  to  the  bond  and  included  in  the  gross 
estate  of  the  decedent,  thereby  becoming  subject  to  the  estate- tax  law. 
(T.  D.  2570,  Nov.  6,  1917.) 

Income  not  reduced  to  possession. — Income  which  is  credited  to  the 
account  of  or  set  apart  for  a  taxpayer  and  which  may  be  drawn  upon  by 
him  at  any  time  is  subject  to  tax  for  the  year  during  which  so  credited 
or  set  apart,  although  not  then  actually  reduced  to  possession.  (See  also 
letter  to  Certified  Audit  Co.  of  America,  signed  by  Dep.  Com.  Speer,  dated 
April  30,  1918.)  To  constitute  receipt  in  such  a  case  the  income  must  be 
credited  to  the  taxpayer  without  any  substantial  limitation  or  restriction 
as  to  the  time  or  manner  of  payment  or  condition  upon  which  payment 
is  to  be  made.  A  book  entry,  if  made,  should  indicate  an  absolute  transfer 
from  one  account  to  another.  If  the  income  is  not  credited,  but  is  set 
apart,  such  income  must  be  unqualifiedly  subject  to  the  demand  of  the 
taxpayer.  Where  a  corporation  contingently  credits  its  employees  with 
bonus  stock,  but  the  stock  is  not  available  to  such  employees  until  the 
termination  of  five  years  of  employment,  the  mere  crediting  on  the  books 
of  the  corporation  does  not  constitute  receipt.  The  distinction  between 
receipt  and  accrual  must  be  kept  in  mind.  Income  may  accrue  to  the  tax- 
payer and  yet  not  be  subject  to  his  demand  or  capable  of  being  drawn  on 
or  against  by  him.  (But  see  §  350  subd.  6  State  Law — Definition  of  "re- 
ceived" 

Examples  of  constructive  receipt. — Where  interest  coupons  have  ma- 
tured, but  have  not  been  cashed,  such  interest  payment,  though  not  col- 
lected when  due  and  payable,  is  nevertheless  available  to  the  taxpayer  and 
should  therefore  be  included  in  his  gross  income  for  the  year  during  which 
the  coupons  matured.  This  is  so  if  the  coupons  are  exchanged  for  other 
property  instead  of  eventually  being  cashed.  Dividends  on  corporate  stock 
are  subject  to  tax  when  set  apart  for  the  stockholder,  although  not  yet 
collected  by  him.  See  section  201  of  the  statute  and  articles  1541-1549. 
The  distributive  share  of  the  profits  of  a  partner  in  a  partnership  or  of  a 
stocklTolder  in  a  personal  service  corporation  is  regarded  as  received.  See 
section  218  of  the  statute  and  articles  321-335.  Interest  credited  on  sav- 


§  359  N.  Y.  ACT  AND  U.  S.  REGULATIONS  261 

ings  bank  deposits,  even  though  the  bank  nominally  have  a  rule,  seldom 
or  never  enforced,  that  it  may  require  so  many  days'  notice  in  advance  of 
cashing  depositors'  checks,  is  income  to  the  depositor  when  credited.  An 
amount  credited  to  shareholders  of  a  building  and  loan  association,  when 
such  credit  passes  without  restriction  to  the  shareholder,  has  a  taxable 
status  as  income  for  the  year  of  the  credit.  Where  the  amount  of  such 
accumulations  does  not  become  available  to  the  shareholder  until  the  ma- 
turity of  a  share,  the  amount  of  any  share  in  excess  of  the  aggregate 
amount  paid  in  by  the  shareholder  is  income  for  the  year  of  the  maturity 
of  the  share.  (Art.  54.) 

Gross  income  defined:  does  not  include. 

2.  Does  not  include  the  following  items  which  shall  be  exempt 
from  taxation  under  this  article : 

(Source:  Fed    Rev.  'Act  1918— §  213-6.) 

What  excluded  from  gross  income. — Gross  income  excludes  the  items 
of  income  specifically  exempted  by  the  statute  and  also  certain  other  kinds 
of  income  by  statute  or  fundamental  law  free  from  tax.  Such  tax-free 
income  should  not  be  included  in  the  return  of  income  and  need  not  be 
mentioned  in  the  return,  unless  information  regarding  it  is  specifically 
called  for,  as  in  the  case,  for  example,  of  interest  on  municipal  bonds. 
See  article  402.  The  exclusion  of  such  income  should  not  be  confused  with 
the  reduction  of  taxable  income  by  the  application  of  allowable  deductions. 
See  section  212  of  the  statute  and  article  21.  (Art.  71.) 

Proceeds  of  life  insurance  policies. 

(a)  The  proceeds  of  life  insurance  policies  and  contracts  paid 
upon  the  death  of  the  insured  to  individual  beneficiaries  or  to  the 
estate  of  the  insured. 

(Source:  Fed.  Rev.  Act  1918— §  213-6,  1.) 

(b)  The  amount  received  by  the  insured  as  a  return  of  premium 
or  premiums   paid  by  him  under  life  insurance,   endowment  or 
annuity  contracts,  either  during  the  term  or  at  the  maturity  of  the 
term  mentioned  in  the  contract  or  upon  surrender  of  the  contract. 

(Source:  Fed.  Rev.  Act  1918— §  213-6,  2.) 

Proceeds  of  insurance. —  (a)  Upon  the  death  of  an  insured  the  pro- 
ceeds of  his  life  insurance  policies,  whether  paid  to  his  estate  or  to  indi- 
vidual beneficiaries,  directly  or  in  trust,  are  excluded  from  the  gross 
income  of  the  beneficiary.  See  article  541.  (6)  During  his  life  only  so 
much  of  the  aliiount  received  by  an  insured  under  life,  endowment  or 
annuity  contracts  as  represents  a  return,  without  interest,  of  premiums 
paid  by  him  therefor  is  excluded  from  his  gross  income.  (But  where  he 
receives  an  amount  in  excess  of  premiums  paid  for  the  insurance,  such 


262  TAX   ON   PERSONAL  INCOMES  §  359 

excess  has  a  taxable  status  and  is  to  be  accounted  for  as  for  the  calendar 
year  of  its  receipt.  (Art.  4,  Reg.  33,  Rev.,  Jan.  2,  1918.)  (c)  Whether 
he  be  alive  or  dead,  the  amounts  received  by  an  insured  or  his  estate  or 
other  beneficiaries  through  accident  or  health  insurance  or  under  work- 
men's compensation  acts  as  compensation  for  personal  injuries  or  sickness 
are  excluded  from  the  gross  income  of  the  insured,  his  estate  and  other 
beneficiaries.  Any  damages  recovered  by  suit  or  agreement  on  account 
of  such  injuries  or  sickness  are  similarly  excluded  from  the  gross  income 
of  the  individual  injured  or  sick,  if  living,  or  of  his  estate  or  other  bene- 
ficiaries entitled  to  receive  such  damages,  if  dead.  See  further  article  294. 
Since  June  25,  1918,  no  assessment  of  any  federal  tax  may  be  made  on 
any  allotments,  family  allowances,  compensation,  or  death  or  disability 
insurance  payable  under  the  War  Risk  Insurance  Act  of  September  2, 
1917,  as  amended,  even  though  the  benefit  accrued  before  that  date.  (Art. 
72.) 

Dividends  paid  on  life  insurance  policies  that  have  not  matured,  whether 
such  dividends  are  drawn  in  cash  by  the  insured  or  applied  to  the  reduc- 
tion of  the  annual  premium  due,  are  not  considered  items  of  taxable  income 
under  the  law,  and  should  be  excluded  from  a  return  of  income.  (T.  D. 
2137,  Jan.  30,  1915.) 

Dividends  on  paid-up  policies  are  in  the  nature  of  corporate  dividends. 
(Art.  4,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Life  insurance  annuities  shall  not  be  included  as  income.  (Signed  by 
Deputy  Commissioner  L.  F.  Speer,  and  dated  Feb.  17,  1914.) 

Payment  of  deferred  dividends  in  so  far  as  they  represent  portions  of 
actual  premiums  received  are  proceeds  of  insurance  policy  within  the 
meaning  of  law."  (Letter  to  R.  L.  Cox — signed  by  Speer,  dated  Mar.  5, 
1914.) 

Property  acquired  by  gift,  etc. 

(c)  The  value  of  property  acquired  by  gift,  bequest,  devise  or 
descent  (but  the  income  from  such  property  shall  be  included  in 
gross  income). 

(Source:  Fed.  Rev.  Act  1918 — §  213-6,  3.) 

Gifts  and  bequests. — Money  and  real  or  personal  property  received  as 
gifts,  or  received  under  a  will  or  under  statutes  of  descent  and  distribu- 
tion, are  exempt  from  tax,  although  the  income  therefrom  derived  from 
investment,  sale  or  otherwise  is  not.  An  amount  of  principal  paid  under 
a  marriage  settlement  is  a  gift.  Neither  alimony  nor  an  allowance  based 
on  a  separation  agreement  is  taxable  income.  (Art.  73.) 

Where  the  monthly  salary  of  an  officer  or  employee  is  paid  for  a  limited 
period  after  his  death  to  his  widow  in  recognition  of  the  services  rendered 
by  her  husband,  no  services  being  rendered  by  the  widow,  it  is  held  that 
such  payment  is  a  gratuity  and  exempt  from  taxation  under  the  income 
tax  law.  Such  a  payment  would  not,  however,  be  an  allowable  deduction 


§  359  N.  Y.  ACT  AND  U.  S.  REGULATIONS  263 

as  an  expense  of  carrying  on  business  in  the  return  of  the  person,  firm,  or 
corporation  paying  same.     (T.  D.  2090,  Dec.  14,  1914.) 

Interest  upon  obligations  of  the  United  States  and  of  New 
York. 

(d)  Interest  upon  the  obligations  of  the  United  States  or  its 
possessions;  or  securities  issued  under  the  provisions  of  the  federal 
farm  loan  act  of  July  seventeen,  nineteen  hundred  and  sixteen ;  or 
bonds  issued  by  the  war  finance  corporation;  or  the  obligations  of 
the  state  of  New  York  or  of  any  municipal  corporation  or  political 
subdivision  thereof;  or  investments  upon  which  the  tax  provided 
for  in  section  three  hundred  and  thirty-one  of  this  chapter  has 
heretofore  been  paid  since  June  first,  nineteen  hundred  and  seven- 
teen, during  the  period  of  years  for  which  such  tax  shall  have  been 
paid. 

(Source:  1st  part  from  Fed.  Rev.  Act  1918 — §  213-&,  4 — portions  in 
italics  are  new.  The  federal  law  exempts  interest  upon  the  obligations  of 
a  State,  Territory,  or  any  political  subdivision  thereof.  *  *  *  See  Com- 
parative Table — ante.} 

Interest  upon  United  States  obligations.— Although  interest  upon  the 
obligations  of  the  United  States  is  in  general  exempt  from  tax,  in  the  case 
of  such  obligations  issued  after  September  1,  1917,  which  include  Treasury 
certificates  of  indebtedness,  war  savings  certificates  and  the  liberty  bond 
issues  (except  the  first  liberty  loan  3%  per  cent  bonds),  the  interest  is 
exempt  from  tax  only  if  and  to  the  extent  provided  in  the  acts  authorizing 
the  issue  thereof,  as  amended  and  supplemented.  Interest  credited  to 
postal  savings  accounts  upon  moneys  deposited  in  postal  savings  banks 
on  or  before  September  1,  1917,  is  exempt  from  income  tax,  while  interest 
credited  upon  deposits  made  subsequently  to  September  1,  1917,  is  liable 
to  tax.  Interest  on  the  first  liberty  loan  3%  per  cent  bonds  is  entirely 
exempt  from  tax,  but  that  absolute  exemption  does  not  extend  to  the  bonds 
of  the  first  liberty  loan  converted.  (Art.  77.) 

Liberty  bond  exemption  from  normal  tax  in  1918. — The  Second  Lib- 
erty Bond  Act  of  September  24,  1917,  as  amended  by  the  Third  Liberty 
Bond  Act  of  April  4,  1918,  and  by  the  Fourth  Liberty  Bond  Act  of  July  9, 
1918,  provides: 

"SEC.  7.  That  none  of  the  bonds  authorized  by  section  one,  nor  of  the 
certificates  authorized  by  section  five,  or  by  section  six,  of  this  act,  shall 
bear  the  circulation  privilege.  All  such  bonds  and  certificates  shall  be 
exempt,  both*  as  to  principal  and  interest  from  all  taxation  now  or  here- 
after imposed  by  the  United  States,  any  State,  or  any  of  the  possessions 
of  the  United  States,  or  by  any  local  taxing  authority,  except  (a)  estate 
or  inheritance  taxes,  and  (b)  graduated  additional  income  taxes,  com- 


264  TAX   ON  PERSONAL  INCOMES  §  359 

monly  known  as  surtaxes,  and  excess-profits  and  war-profits  taxes,  now  or 
hereafter  imposed  by  the  United  States,  upon  the  income  or  profits  of 
individuals,  partnerships,  associations,  or  corporations.  The  interest  on 
an  amount  of  such  bonds  and  certificates  the  principal  of  which  does  not 
exceed  in  the  aggregate  $5,000,  owned  by  any  individual,  partnership,  asso- 
ciation, or  corporation,  shall  be  exempt  from  the  taxes  provided  for  in 
subdivision  (b)  of  this  section." 

Accordingly,  in  addition  to  the  interest  on  first  liberty  loan  3y%  per  cent 
bonds,  which  is  entirely  free  from  tax,  all  interest  on  first  liberty  loan 
converted  4  per  cent  bonds,  first  liberty  loan  converted  4^  per  cent  bonds, 
first  liberty  loan  second  converted  41/4  per  cent  bonds,  second  liberty  loan 
4  per  cent  bonds,  second  liberty  loan  converted  4*4  per  cent  bonds,  third 
liberty  loan  4*4  per  cent  bonds,  and  fourth  liberty  loan  41/4  per  cent  bonds, 
together  with  all  interest  on  United  States  certificates  of  indebtedness 
and  war  savings  certificates,  is  exempt  from  the  normal  tax.  Such  interest 
in  excess  of  the  interest  on  not  exceeding  $5,000  principal  amount  of  such 
bonds  and  certificates  may,  however,  be  subject  to  surtax  and  to  the  war 
profits  and  excess  profits  tax  and  may  accordingly  require  to  be  included 
in  gross  income.  (Art.  78.) 

Dividends  and  interest  from  federal  land  bank  and  national  farm 
loan  association. — As  section  26  of  the  Federal  Farm  Loan  Act  of  July 
17,  1916,  provides  that  every  federal  land  bank  and  every  national  farm 
loan  association,  including  the  capital  and  reserve  or  surplus  therein  and 
the  income  derived  therefrom,  shall  be  exempt  from  taxation,  except  taxes 
upon  real  estate,  and  that  farm  loan  bonds,  with  the  income  therefrom, 
shall  be  exempt  from  taxation,  the  income  derived  from  dividends  on  stock 
of  federal  land  banks  and  national  farm  loan  associations  and  from  inter- 
est on  such  farm  loan  bonds  is  not  subject  to  the  income  tax.  See  also 
section  231  (13)  of  the  statute.  (Art.  75.) 

Dividends  from  federal  reserve  bank. — As  section  7  of  the  Federal 
Reserve  Act  of  December  23,  1913,  provides  that  federal  reserve  banks, 
including  the  capital  stock  and  surplus  therein  and  the  income  derived 
therefrom,  shall  be  exempt  from  taxation,  except  taxes  upon  real  estate, 
such  exemption  attaches  to  and  follows  the  income  derived  from  dividends 
on  stock  of  federal  reserve  banks  in  the  hands  of  the  stockholders,  so  that 
the  dividends  received  on  the  stock  of  federal  reserve  banks  are  not  sub- 
ject to  the  income  tax.  Dividends  paid  by  member  banks,  however,  are 
treated  like  dividends  of  ordinary  corporations.  (Art.  76.) 

Where  a  municipality  purchases  a  public  utility  subject  to  a  mortgage 
the  mortgage  retains  its  original  character,  even  though  the  municipality 
assumes  the  mortgage  indebtedness  and  pays  the  interest  thereon.  There- 
fore, the  indebtedness  secured  by  such  mortgage  is  not  an  obligation  of 
the  municipality  within  the  meaning  of  Paragraph  B  of  the  income  tax  law. 
(T.  D.  2090,  Dec.  14,  1914.) 

Political  subdivisions. — The  term  "political  subdivision"  denotes  any 
division  of  the  State  made  by  proper  authorities  thereof  acting  within  their 
constitutional  powers  for  the  purpose  of  carrying  out  a  portion  of  those 


§  359  N.  T.  ACT  AND  U.  S.  REGULATIONS  265 

functions  of  the  State  which  by  long  usage  and  the  inherent  necessities 
of  government  have  always  been  regarded  as  public.  Political  subdivisions 
of  a  State,  within  the  meaning  of  the  exemption  referred  to  in  Article  83, 
include  special  assessment  districts  so  created,  such  as  road,  water,  sewer, 
gas,  light,  reclamation,  drainage,  irrigation,  levee,  school,  harbor,  port 
improvement  and  similar  districts  and  divisions  of  a  State."  (Art.  84, 
Reg.  33,  Rev.,  Jan.  2,  1918,  as  amended  by  T.  D.  2715,  May  20,  1918.) 

Returns  of  income  from  exempt  securities. — Where  the  entire  income 
of  an  individual  is  from  tax-exempt  bonds  and  where  the  amount  of  income 
other  than  that  from  tax-exempt  securities  is  less  than  the  amount  of 
income  for  which  a  return  is  required,  no  return  of  income  is  to  be  made. 
Interest  from  securities  which  is  exempt  from  tax  under  section  4  [Sec. 
213]  of  the  Income  Tax  Law  is  not  to  be  included  in  returns  of  income. 
(Art.  26,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Amounts  received  through  accident  insurance,  etc. 

(e)  Any  amount  received  through  accident  or  health  insurance 
or  under  workmen's  compensation  acts,  as  compensation  for  per- 
sonal injuries  or  sickness,  plus  the  amount  of  any  damages  received 
whether  by  suit  or  agreement  on  account  of  such  injuries  or  sick- 
ness, or  through  the  war  risk  insurance  act  or  any  law  for  the  ben- 
efit or  relief  of  injured  or  disabled  members  of  the  military  or  naval 
forces  of  the  United  States. 

(Source:  Fed.  Rev.  Act  1918 — §  213-6,  6 — Portions  in  italics  new.) 

The  Attorney  General  has  advised  upon  the  basis  of  recent  decisions  of 
the  Supreme  Court  (Doyle  v.  Mitchell  Brothers  Company  (247  U.  S.  179), 
decided  May  20,  last;  Lynch  v.  Hornby,  Lynch  v.  Turrish  and  Southern 
Pacific  Company  v.  Lowe,  decided  June  3,  last)  and  it  is  accordingly  held 
that  the  proceeds  of  an  accident  insurance  policy  received  by  an  individual 
on  account  of  personal  injuries  sustained  by  him  through  accident  are  not 
income  taxable  under  the  provisions  of  Title  I  of  the  Act  of  September  8, 
1916,  as  amended  by  Title  XII  of  the  Act  of  October  3,  1917,  and  of  Title 
I  of  the  Act  of  October  3,  1917. 

It  is  held  upon  similar  principles  that  an  amount  received  by  an  indi- 
vidual as  the  result  of  a  suit  or  compromise  for  personal  injuries  sustained 
by  him  through  accident  is  not  income  taxable  under  the  provisions  of  said 
Titles. 

Such  provisions  of  Treasury  Decisions  and  of  Regulations  No.  33  (Re- 
vised) as  are  inconsistent  herewith  are  hereby  revoked.  (T.  D.  2747,  July 
12,  1918.) 

Reimbursement  of  expenses  incident  to  an  accident — Amounts  re- 
ceived from  a  railroad  company  by  way  of  reimbursement  for  expenses 
incident  to  an  accident  are  not  subject  to  the  income  tax.  (T.  D.  2135, 
Jan.  23,  1915.) 


266  TAX   ON  PERSONAL  INCOMES  §  359 

Accident  insurance  paid  on  death  of  the  insured. — The  proceeds  of 
accident  insurance  policies  paid  upon  the  death  of  the  person  insured  to 
the  beneficiaries  is  to  be  treated  like  the  proceeds  of  life  insurance  policies. 
(T.  D.  2135,  Jan.  23,  1915.) 

Salaries  of  United  States  officials. 

(f)  Salaries,  wages  and  other  compensation  received  from  the 
United  States  of  officials  or  employees  thereof,  including  persons  in 
the  military  or  naval  forces  of  the  United  States. 

(Source:  New  ) 

Compensation  of  soldiers  and  sailors.— A  person  of  either  sex  in 
active  service  in  the  military  or  naval  forces  of  the  United  States  may 
exclude  from  gross  income  his  or  her  compensation  received  from  the 
United  States  up  to  the  amount  of  $3,500  in  any  taxable  year,  except  that 
this  exemption  does  not  apply  to  compensation  received  either  before  or 
after  the  present  war.  The  date  of  the  termination  of  the  war  for  the 
purpose  of  the  statute  will  be  fixed  by  proclamation  of  the  President.  The 
military  and  naval  forces  of  the  United  States  include,  among  others,  army 
contract  surgeons  and  the  individuals  named  in  section  1  of  the  statute. 
A  person  is  in  active  service  if  he  is  actually  serving  in  such  forces,  not 
necessarily  in  the  field  or  in  the  theatre  of  war,  and  is  not  merely  on  the 
retired  or  reserve  list.  Accordingly,  if  such  a  person  receives  compensa- 
tion from  the  United  States  of  $3,500  or  less  and  has  no  other  income  of 
an  amount  sufficient  in  itself  to  require  him  to  render  a  return  of  income, 
he  need  make  no  return.  Members  of  draft  boards  are  not  as  such  entitled 
to  this  exemption.  (Art.  86.) 

(Note:    The  State  Law  sets  no  maximum  limit.) 

Income  received  by  officer  of  religious,  charitable,  etc.,  insti- 
tution. 

(g)  Income  received  by  any  officer  of  a  religious  denomination 
or  by  any  institution,  or  trust,  for  moral  or  mental  improvement, 
religious,  bible,  tract,  charitable,  benevolent,  fraternal,  missionary, 
hospital,   infirmary,   educational,   scientific,   literary,   library,   pa- 
triotic, historical  or  cemetery  purposes,  or  for  the  enforcement  of 
laws  relating  to  children  or  animals,  or  for  two  or  more  of  such 
purposes,  if  such  income  be  used  exclusively  for  carrying  out  one 
or  more  of  such  purposes;  but  nothing  herein  shall  be  construed 
to  exempt  the  fees,  stipends,  personal  earnings  or  other  private 
income  of  such  officer  or  trustee. 

(Source:  New.) 


§  359  N.  Y.  ACT  AND  U.  S.  REGULATIONS  267 

Gross  income:  taxpayers  other  than  residents. 

3.  In  the  case  of  taxpayers  other  than  residents,  gross  income 
includes  only  the  gross  income  from  sources  within  the  state,  but 
shall  not  include  annuities,  interest  on  bank  deposits,  interest  on 
bonds,  notes  or  other  interest-bearing  obligations  or  dividends  from 
corporations,  except  to  the  extent  to  which  the  same  shall  be  a  part 
of  income  from  any  business,  trade,  profession  or  occupation  car- 
ried on  in  this  state  subject  to  taxation  under  this  article. 

(Source:  Fed.  Rev.  Act,  1918 — §  213-c — The  wording  differs  slightly.) 
See  note  at  beginning  of  this  chapter.) 

Gross  income  of  non-resident  alien  individuals. — In  the  case  of  non- 
resident alien  individuals  "gross  income"  means  only  the  gross  income 
from  sources  within  the  United  States.  This  includes  interest  on  bonds, 
notes  or  other  interest-bearing  obligations  of  residents,  corporate  or  other- 
wise, dividends  from  resident  corporations,  amounts  received  representing 
profits  on  the  manufacture  or  disposition  of  goods  within  the  United 
States,  rentals  and  royalties  from  property  and  income  from  business  car- 
ried on  in  the  United  States,  interest  on  deposits  in  banks  located  within 
the  United  States,  income  from  capital  otherwise  invested  in  the  United 
States,  and  income  from  services  rendered  or  labor  performed  within  the 
United  States.  *  *  *  (Art.  91.) 

Royalties  received  by  non-resident  aliens. — Royalties  paid  to  non- 
resident aliens  under  an  agreement  of  purchase  of  certain  patent  rights, 
the  payment  being  based  upon  the  quantity  of  goods  produced  by  the  use 
of  such  patents,  are  held  to  be  income  accruing  to  non-resident  aliens  by 
reason  of  property  owned  or  business  carried  on  within  the  United  States; 
and  *  *  *  .  (T.  D.  2137,  January  30,  1915.) 

Income  of  non-resident  alien  individuals  not  subject  to  tax. — Sal- 
aries, wages,  commissions  and  rents  paid  by  domestic  business  enterprises 
to  non-resident  alien  employees  for  services  rendered  entirely  in  a  foreign 
country  or  for  p'roperty  located  in  a  foreign  country  are  not  subject  to 
tax  as  income  from  a  source  within  the  United  States.  Dividends  on  stock 
and  interest  on  notes  of  corporations  organized  in  the  United  States,  but 
doing  no  business  and  owning  no  property  therein,  paid  to  non-resident 
alien  individuals  or  corporations,  are  not  subject  to  the  tax.  The  tax 
does  not  apply  to  charter  money  or  freight  payments  received  by  a  foreign 
owner  in  regard  to  a  vessel  operated  between  the  United  States  and  foreign 
ports,  if  the  person  receiving  the  income  maintains  no  regular  agency  in 
the  United  States  and  is  not  doing  business  in  the  United  States.  Com- 
pensation received  by  non-resident  alien  munitions  inspectors  and  pur- 
chasing agents  from  foreign  governments  is  not  subject  to  the  tax.  (Art. 
92.) 


268  TAX   ON   PERSONAL   INCOMES  §  360 

Gross  income:  Subtraction  for  redemption  of  trading  stamps. — 
Where  a  taxpayer,  for  the  purpose  of  promoting  his  business,  issues  with 
sales  trading  stamps  or  premium  coupons  redeemable  in  merchandise  or 
cash,  he  should  in  computing  the  income  from  such  sales  subtract  only 
the  amount  received  or  receivable  which  will  be  required  for  the  redemp- 
tion of  such  part  of  the  total  issue  of  trading  stamps  or  premium  coupons 
issued  during  the  taxable  year  as  will  eventually  be  presented  for  redemp- 
tion. This  amount  will  be  determined  in  the  light  of  the  experience  of  the 
taxpayer  in  his  particular  business  and  of  other  users  engaged  in  similar 
businesses.  The  taxpayer  shall  file  for  each  of  the  five  preceding  years, 
or  such  number  of  these  years  as  stamps  or  coupons  have  been  issued  by 
him,  a  statement  showing  (a)  the  total  issue  of  stamps  during  each  year, 
(&)  the  total  stamps  redeemed  in  each  year,  and  (c)  the  percentage  for 
each  year  of  the  stamps  redeemed  to  the  stamps  issued  in  such  year.  A 
similar  statement  shall  also  be  presented  showing  the  experience  of  other 
users  of  stamps  or  coupons  whose  experience  is  relied  upon  by  the  tax- 
payer to  determine  the  amount  to  be  subtracted  from  the  proceeds  of  sales. 
The  Commissioner  will  examine  the  basis  used  in  each  return,  and  in  any 
case  in  which  the  amount  subtracted  in  respect  of  such  stamps  or  coupons 
is  found  to  be  excessive  an  amended  return  or  amended  returns  will  be 
required.  (Art.  88.) 

Deductions  allowable  in  computing  net  income :  ordinary  and 
necessary  expenses. 

SEC.  360.  Deductions.  In  computing  net  income  there  shall  be 
allowed  as  deductions: 

1.  All  the  ordinary  and  necessary  expenses  paid  or  incurred  dur- 
ing the  taxable  year  in  carrying  on  any  trade  or  business,  including 
a  reasonable  allowance  for  salaries  or  other  compensation  for  per- 
sonal services  actually  rendered,  and  including  rentals  or  other 
payments  required  to  be  made  as  a  condition  to  the  continued  use 
or  possession,  for  purposes  of  the  trade  or  business,  of  property  to 
which  the  taxpayer  has  not  taken  or  is  not  taking  title  or  in  which 
he  has  no  equity. 

(Source:  Fed.  Rev.  Act  1918— §  214,  a-1.  For  meaning  of  "paid"  and 
"paid  or  incurred"  see  §  350-6. 

Business  expenses. — Business  expenses,  whether  subtracted  from  total 
receipts  in  computing  gross  income  or  deducted  from  gross  income  in  com- 
puting net  income,  include  all  items  entering  into  what  is  ordinarily  known 
as  the  cost  of  goods  sold,  together  with  selling  and  management  expenses, 
except  such  classes  of  items  as  are  treated  in  articles  121  to  268.  Among 
the  items  to  be  treated  as  business  expenses  are  material,  labor,  supplies 
and  repairs  in  the  case  of  a  manufacturer,  while  a  merchant  would  include 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  269 

his  purchases  of  goods  bought  for  resale.  In  either  case  the  amount  to  be 
taken  as  a  deduction  in  any  year  should  be  determined  by  taking  into 
consideration  the  inventory  at  the  beginning  and  end  of  the  year.  Other 
items  that  may  be  included  as  business  expenses  are  reasonable  compensa- 
tion for  the  services  of  officers  and  employees,  advertising  and  other  selling 
expenses,  together  with  insurance  premiums  against  fire,  storm,  theft,  acci- 
dent or  other  similar  losses  in  the  case  of  a  business,  and  rental  for  the 
use  of  business  property.  A  taxpayer  is  entitled  to  deduct  the  necessary 
expenses  paid  in  carrying  on  his  business  from  his  gross  income  from 
whatever  source.  (Art.  101.) 

Cost  of  materials. — Taxpayers  carrying  materials  and  supplies  on  hand 
should  include  in  expenses  the  charges  for  materials  and  supplies  only  to 
the  amount  that  they  are  actually  consumed  and  used  in  operation  during 
the  year  for  which  the  return  is  made,  provided  that  the  cost  of  such 
material  and  supplies  has  not  been  taken  into  account  in  determining  the 
net  income  for  any  previous  year.  If  a  taxpayer  carries  materials  or  sup- 
plies on  hand  for  which  no  record  of  consumption  is  kept  or  of  which 
physical  inventories  at  the  beginning  and  end  of  the  year  are  not  taken, 
it  will  be  permissible  for  the  taxpayer  to  include  in  his  expenses  and  deduct 
from  gross  income  the  total  cost  of  such  supplies  and  materials  as  were 
purchased  during  the  year  for  which  the  return  is  made,  provided  the  net 
income  is  clearly  reflected  by  this  method.  (Art.  102.) 

Repairs. — The  cost  of  incidental  repairs  which  neither  materially  add 
to  the  value  of  the  property  nor  appreciably  prolong  its  life,  but  keep  it 
in  an  ordinarily  efficient  operating  condition,  may  be  deducted  as  expense, 
provided  the  plant  or  property  account  is  not  increased  by  the  amount  of 
such  expenditures.  Repairs  in  the  nature  of  replacements,  to  the  extent 
that  they  arrest  deterioration  and  appreciably  prolong  the  life  of  the 
property,  should  be  charged  against  the  depreciation  reserve.  (Art.  103.) 

Professional  expenses. — A  professional  man  may  claim  as  deductions 
the  cost  of  supplies  used  by  him  in  the  practice  of  his  profession,  expenses 
paid  in  the  operation  and  repair  of  an  automobile  used  in  making  pro- 
fessional calls,  dues  to  professional  societies  and  subscriptions  to  pro- 
fessional journals,  the  rent  paid  for  office  rooms,  the  expense  of  the  fuel, 
light,  water,  telephone,  etc.,  used  in  such  offices,  and  the  hire  of  office 
assistants.  Amounts  expended  for  books,  furniture  and  professional  instru- 
ments and  equipment  of  a  permanent  character  are  not  allowable  as  deduc- 
tions. (Art.  104.) 

******* 

The  form  or  method  of  fixing  compensation  is  not  decisive  as  to  deduci- 
bility. While  any  form  of  contingent  compensation  invites  scrutiny  as 
possible  distribution  of  earnings  of  the  enterprise,  it  does  not  follow  that 
payments  on  a  contingent  basis  are  to  be  treated  fundamentally  on  any 
basis  different  from  that  applying  to  compensation  at  a  flat  rate.  Gen- 
erally speaking,  if  contingent  compensation  is  paid  pursuant  to  a  free 
bargain  between  the  enterprise  and  the  individual  made  before  the  services 
are  rendered,  not  influenced  by  any  consideration  on  the  part  of  the  em- 


270  TAX   ON   PERSONAL   INCOMES  §  360 

ployer  other  than  that  of  securing  on  fair  and  advantageous  terms  the 
services  of  the  individual,  it  should  be  allowed  as  a  deduction  even  though 
in  the  actual  working  out  of  the  contract  it  may  prove  to  be  greater  than 
the  amount  which  would  ordinarily  be  paid.  *  *  * 

(b)  In  the  case  of  excessive  payments  by  individuals  or  partnerships, 
the  amounts  disallowed  should  ordinarily  be  treated  as  partnership  shares 
and  would  thus  be  free  from  the  excess-profits  tax  to  the  recipient,  but, 
of  course,  still  subject  to  the  income  tax,  except  that  payments  for  prop- 
erty should  be  treated  by  the  individual  or  partnership  as  a  capital  ex- 
penditure and  by  the  recipient  as  part  of  the  purchase  price. 
****#*# 

Compensation  on  whatever  basis  fixed,  representing  only  the  price  paid 
for  services  pursuant  to  a  fair  bargain  made  in  advance  between  the  indi- 
vidual and  the  business  enterprise,  is  deductible  in  determining  the  tax- 
able net  income  of  the  enterprise.  Payments  nominally  as  compensation 
for  services,  which  in  fact  include  amounts  paid  as  dividends,  waste  of 
corporate  assets,  payments  for  property  or  for  anything  other  than  services, 
are  deductible  only  to  an  amount  not  in  excess  of  compensation  for  like 
services  in  similar  enterprises. 

Compensation  greater  than  that  ordinarily  paid  for  like  services  in  sim- 
ilar enterprises  must  be  shown  to  represent  payment  for  services  only.  In 
the  case  of  compensation  fixed  after  services  are  rendered  and  not  in 
accordance  with  any  contract  or  any  custom  or  practice  amounting  vir- 
tually to  a  contract,  reasonableness  is  ordinarily  the  controlling  test  of 
deductibility.  (T.  D.  2696,  April  10,  1918.) 

(3)  In  any  event  the  allowance  for  compensation  paid  may  not  exceed 
what  is  reasonable  in  all  the  circumstances.  It  is  in  general  just  to  assume 
that  reasonable  and  true  compensation  is  only  such  amount  as  would  or- 
dinarily be  paid  for  like  services  by  like  enterprises  in  like  circumstances. 
The  circumstances  to  be  taken  into  consideration  are  those  existing  at  the 
date  when  the  contract  for  services  was  made,  not  those  existing  at  the 
date  when  the  contract  is  questioned.  See  article  32.  (Art.  105 — Reg.  45, 
Rev.) 

Commissions  paid  to  salesmen. — Commissions  paid  to  salesmen  as  a 
part  of  the  expense  of  conducting  business  are  allowable  deductions  to  the 
payer  of  the  commission.  (T.  D.  2090,  Dec.  14,  1914.) 

Commissions  paid  real  estate  agents. — A  commission  paid  to  a  real 
estate  agent  for  collecting  rents  and  management  of  property  is  a  legiti- 
mate business  expense  and  constitutes  an  allowable  deduction  in  computing 
net  income.  (T.  D.  2090,  Dec.  14,  1914.) 

Allowances  to  minor  children. — The  father  is  legally  entitled  to  the 
service  of  his  minor  children.  As  a  rule,  allowances  which  he  gives  them, 
whether  said  to  be  in  consideration  of  service  or  otherwise,  are  not  allow- 
able deductions,  in  his  return  of  income  nor  are  they  income  to  the  chil- 
dren. (Art.  8,  Reg.  33,  Rev.,  Jan.  2,  1918.) 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  271 

Paying  salary  to  self. — Wages  or  salary  drawn  by  a  taxpayer  from  his 
own  business  are  more  in  the  nature  of  a  charge  out  of  profits  than  a 
charge  against  profits.  If  such  could  be  deducted  they  would  merely  be 
added  to  his  income,  the  effect  of  which  would  be  to  take  money  out  of 
one  pocket  and  put  it  in  another.  Therefore,  no  deduction  can  be  claimed. 
(Question  49,  1918  Income  Tax  Primer.) 

Bonuses  to  employees. — Gifts  or  bonuses  to  employees  will  constitute 
allowable  deductions  from  gross  income  when  such  payments  are  made  in 
good  faith  and  as  additional  compensation  for  the  services  actually  ren- 
dered by  the  employees,  provided  such  payments,  when  added  to  the  stipu- 
lated salaries,  do  not  exceed  a  reasonable  compensation  for  the  services 
rendered.  Donations  made  to  employees  and  others,  which  do  not  have 
in  them  the  element  of  compensation  or  are  in  excess  of  reasonable  com- 
pensation for  services,  are  considered  gratuities  and  are  not  deductible 
from  gross  income.  (Art.  107.) 

Bonuses  which  may  be  otherwise  deductible  are  not  so  when  left 
with  the  company  to  secure  it  against  loss. — If  a  corporation  pays  its 
employees  a  salary  in  the  form  of  weekly  stated  amounts,  together  with  a 
certain  percentage  of  the  profits,  and  if  such  percentage  of  the  profits  is  in 
no  way  based  upon  interest  in  the  business  and  makes  a  total  which  is  no 
more  than  a  fair  compensation,  is  such  payment  or  percentage  of  the 
profits  allowably  deducted  from  gross  income  of  the  corporation  in  the 
event  that  there  is  an  agreement  to  the  effect  that  the  so-called  bonuses 
are  to  be  left  on  deposit  with  the  company  to  secure  the  company  against 
such  losses  as  may  be  by  contract  charged  to  the  employees  at  a  per- 
centage of  the  profits  received  under  the  contract. 

In  reply,  you  are  informed  that  under  the  conditions  set  out  in  the  fore- 
going paragraph,  the  bonuses  or  percentages  of  profits  "left  on  deposit 
with  the  company  to  secure  it  against  loss,"  are  not  deductible.  (Letter 
to  Greenbaum,  Wolff  &  Ernst,  New  York,  N.  Y.,  signed  by  Acting  Deputy 
Commissioner  S.  H.  Boyd,  and  dated  November  30,  1917.) 

(See  also   §   359-1,  supra — Bonus  as   taxable  income.) 

Donations  deductible. — Donations  made  by  a  corporation  for  purposes 
connected  with  the  operation  of  the  property,  when  limited  to  charitable 
institutions,  hospitals,  or  educational  institutions,  conducted  for  the  benefit 
of  its  employees  or  their  dependents,  shall  be  a  proper  deduction  as  ordi- 
nary and  necessary  expenses.  Such  deduction  should,  however,  be  reduced 
by  any  amount  repaid  to  the  corporation  by  the  employees. 

Donations  which  legitimately  represent  a  consideration  for  a  benefit 
flowing  directly  to  the  corporation  as  an  incident  of  its  business  are  allow- 
able deductions  from  gross  income  in  ascertaining  net  income  subject  to 
the  income  tax;  for  example,  a  street  railway  corporation  donates  a  sum 
of  money  to  an  organization  intending  to  hold  a  convention  in  the  city  in 
which  it  operates,  with  the  expectation  that  the  holding  of  such  conven- 
tion will  augment  its  income  through  a  greater  number  of  people  using 
the  cars.  In  such  case  the  donations  would  be  an  allowable  deduction,  the 


272  TAX   ON  PERSONAL  INCOMES  §  360 

reduction  to  be  reduced  by   any  portion   of  the  donation  which   may  be 
returned  to  the  corporation.      (Art.  134,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Pensions. — Amounts  paid  for  pensions  to  retired  employees  or  to  their 
families  or  others  dependent  upon  them,  or  on  account  of  injuries  received 
by  employees,  and  lump  sum  amounts  paid  as  compensation  for  injuries, 
are  proper  deductions  as  ordinary  and  necessary  expenses.  Such  deduc- 
tions are  limited  to  the  amount  not  compensated  for  by  insurance  or  other- 
wise. No  deduction  shall  be  made  for  contributions  to  a  pension  fund 
held  by  the  corporation,  the  amount  deductible  in  such  case  being  the 
amount  actually  paid  to  the  employee.  When  the  amount  of  the  salary  of 
an  officer  or  employee  is  paid  for  a  limited  period  after  his  death  to  his 
widow  or  heirs  in  recognition  of  the  services  rendered  by  the  individual, 
such  payments  may  be  deducted.  Salaries  paid  by  employers  during  the 
continuance  of  the  war  to  employees  who  are  absent  in  the  military  or 
naval  service  or  are  serving  the  Government  in  other  ways  at  a  nominal 
compensation,  but  who  intend  to  return  at  the  conclusion  of  the  war,  are 
allowable  deductions.  (Art.  108.) 

Spending  money. — So-called  "spending  or  treating  money"  actually 
advanced  by  corporations  to  their  traveling  salesmen  to  be  used  by  them 
as  a  part  of  the  expense  incident  to  selling  the  product  of  such  corpora- 
tions, is  an  allowable  deduction  in  a  return  of  income  by  such  corpora- 
tion. The  deduction  of  such  expenditures  is  conditioned  upon  a  satisfac- 
tory showing  that  all  the  allowance  claimed  as  a  deduction  was  actually 
expended  for  and  was  an  ordinary  and  usual  expense  incurred  in  selling 
the  product  or  merchandise  of  the  corporation.  (Art.  133,  Reg.  33,  Rev., 
Jan.  2,  1918.) 

Business  insurance. — Premiums  paid  in  advance,  covering  a  period  of 
several  years,  are  to  be  taken  as  a  deduction  on  the  basis  of  one  of  two 
methods:  When  the  books  are  kept  on  a  cash  basis,  the  entire  amount  is 
deductible  in  the  year  in  which  the  premium  is  paid.  Where  the  books 
are  kept  on  an  accrual  basis  the  premium  is  to  be  prorated  over  the  period 
covered  by  the  insurance.  (Art.  8,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Reserves  for  insurance. — Funds  set  aside  by  a  corporation  for  insuring 
its  own  property  are  not  a  proper  deduction,  but  if  such  funds  are  set 
aside,  or  a  reserve  therefor  is  set  up,  any  loss  actually  sustained  and 
charged  to  such  funds  or  reserves  may  be  deducted.  (Art.  144,  Reg.  33, 
Rev.,  Jan.  2,  1918.) 

Lobbying  expenses  and  campaign  contributions. — Sums  of  money 
expended  for  lobbying  purposes,  the  promotion  or  defeat  of  legislation,  the 
exploitation  of  propaganda,  and  contributions  for  campaign  expenses  are 
held  not  to  be  an  ordinary  and  necessary  expense  in  the  operation  and 
maintenance  of  the  business  of  a  corporation,  and  are  therefore  not  de- 
ductible from  gross  income  in  arriving  at  the  net  income  upon  which  the 
income  tax  is  computed.  (Art.  143,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Rentals. — Where  a  leasehold  is  acquired  for  a  specified  sum,  the  pur- 
chaser may  take  as  a  deduction  in  his  return  an  aliquot  part  of  such 


§  360  N.  Y.  ACT  AND  U.  8.  REGULATIONS  273 

sum  each  year,  based  on  the  number  of  years  the  lease  has  to  run.  Taxes 
paid  by  a  tenant  to  or  for  a  landlord  for  business  property  are  additional 
rent  and  constitute  a  deductible  item  to  the  tenant  and  taxable  income 
to  the  landlord,  the  amount  of  the  tax  being  deductible  by  the  latter.  The 
cost  of  erecting  buildings  or  permanent  improvements  on  ground  leased 
by  a  taxpayer  is  additional  rental  and  is  therefore  a  proper  deduction 
from  gross  income,  provided  such  buildings  and  improvements  under  the 
terms  of  the  lease  revert  to  the  owner  of  the  ground  at  the  expiration  of 
the  lease.  In  such  a  case  the  cost  will  be  prorated  according  to  the  num- 
ber of  years  constituting  the  term  of  the  lease.  The  lessee  will  not  be 
permitted  to  deduct  from  gross  income  any  depreciation  with  respect  to 
such  buildings,  but  the  cost  of  incidental  repairs  necessary  to  keep  them 
in  an  efficient  condition  for  the  purposes  of  their  use  may  be  deducted.  If, 
however,  the  life  of  the  improvement  is  less  than  the  life  of  the  lease, 
depreciation  may  be  taken  by  the  lessee  instead  of  treating  the  cost  as  rent. 
(Art.  109.) 

Rent  for  residential  property. — In  the  case  of  a  professional  man  who 
rents  a  property  for  residential  purposes  but  receives  there  clients,  pa- 
tients, or  callers  in  connection  with  his  professional  work  (the  place  of 
business  being  elsewhere),  no  part  of  the  rent  is  deductible  as  business 
expense.  (Art.  8,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Expenses  of  farmers.— A  farmer  who  operates  a  farm  for  profit  is 
entitled  to  deduct  from  gross  income  as  necessary  expenses  all  amounts 
actually  expended  in  the  carrying  on  of  the  business  of  farming.  The  cost 
of  ordinary  tools,  of  short  life  or  small  cost,  such  as  hand  tools,  including 
shovels,  rakes,  etc.,  may  be  included.  The  cost  of  feeding  and  raising  live 
stock  may  be  treated  as  an  expense  deduction,  in  so  far  as  such  cost  repre- 
sents actual  outlay,  but  not  including  the  value  of  farm  produce  grown 
upon  the  farm  or  the  labor  of  the  taxpayer.  Where  a  farmer  is  engaged 
in  producing  crops  which  take  more  than  a  year  from  the  time  of  planting 
to  the  process  of  gathering  and  disposal,  expenses  deducted  may  be  deter- 
mined upon  the  crop  basis,  and  such  deductions  must  be  taken  in  the  year 
in  which  the  gross  income  from  the  crop  has  been  realized.  If  a  farm  is 
operated  for  recreation  or  pleasure  and  not  on  a  commercial  basis,  and  if 
the  expenses  incurred  in  connection  with  the  farm  are  in  excess  of  the 
receipts  therefrom,  the  entire  receipts  from  the  sale  of  products  may  be 
ignored  in  rendering  a  return  of  income,  and  the  expenses  incurred,  being 
regarded  as  personal  expenses,  will  not  constitute  allowable  deductions. 
The  cost  of  farm  machinery  and  farm  buildings  represents  a  capital  invest- 
ment and  is  not  an  allowable  deduction  as  an  item  of  expense.  Amounts 
expended  in  the  development  of  farms,  orchards  and  ranches  prior  to  the 
time  when  the  productive  state  is  reached  may  be  regarded  as  investments 
of  capital.  The  amount  expended  in  purchasing  draft  or  work  animals 
or  live  stock  either  for  resale  or  for  breeding  purposes  is  regarded  as  an 
investment  of  capital.  The  purchase  price  of  an  automobile,  even  when 
wholly  used  in  carrying  on  farming  operations,  is  not  deductible,  but  it  is 
regarded  as  an  investment  of  capital.  The  cost  of  gasoline,  repairs  and 


274  TAX    ON    PERSONAL    INCOMES  §  360 

upkeep  of  an  automobile  if  used  wholly  in  the  business  of  farming  is 
deductible  as  an  expense;  if  used  partly  for  business  purposes  and  partly 
for  the  pleasure  or  convenience  of  the  taxpayer  or  his  family,  such  cost 
may  be  apportioned  according  to  the  extent  of  the  use  for  purposes  of 
business  and  pleasure  or  convenience,  and  only  the  proportion  of  such  cost 
justly  attributable  to  business  purposes  is  deductible  as  a  necessary  ex- 
pense. (Art.  110.) 

When  charges  deductible. — Each  year's  return,  so  far  as  practicable, 
both  as  to  gross  income  and  deductions  therefrom,  should  be  complete  in 
itself,  and  taxpayers  are  expected  to  make  every  reasonable  effort  to  ascer- 
tain the  facts  necessary  to  make  a  correct  return.  See  articles  21-24  and 
52.  The  expenses,  liabilities  or  deficit  of  one  year  can  not  be  used  to 
reduce  the  income  of  a  subsequent  year.  A  person  making  returns  on  an 
accrual  basis  has  the  right  to  deduct  all  authorized  allowances,  whether 
paid  in  cash  or  set  up  as  a  liability,  and  it  follows  that  if  he  does  not 
within  any  year  pay  or  accrue  certain  of  his  expenses,  interest,  taxes  or 
other  charges,  and  makes  no  deduction  therefor,  he  can  not  deduct  from 
the  income  of  the  next  or  any  subsequent  year  any  amounts  then  paid  in 
liquidation  of  the  previous  year's  liabilities.  A  loss  from  theft  or  embez- 
zlement occurring  in  one  year  and  discovered  in  another  is  deductible  only 
for  the  year  of  its  occurrence.  Any  amount  paid  pursuant  to  a  judgment 
or  otherwise  on  account  of  damages  for  personal  injuries,  patent  infringe- 
ment or  otherwise,  is  deductible  from  gross  income  when  the  claim  is  put 
in  judgment  or  paid,  less  any  amount  of  such  damages  as  may  have  been 
compensated  for  by  insurance  or  otherwise.  If  subsequently  to  its  occur- 
rence, however,  a  taxpayer  first  ascertains  the  amount  of  a  loss  sustained 
during  a  prior  taxable  year  which  has  not  been  deducted  from  gross 
income,  he  may  render  an  amended  return  for  such  preceding  taxable 
year,  including  such  amount  of  loss  in  the  deductions  from  gross  income, 
and  may  file  a  claim  for  refund  of  the  excess  tax  paid  by  reason  of  the 
failure  to  deduct  such  loss  in  the  original  return.  (Art.  111.) 

Deductions  allowable:  interest  paid  or  accrued. 

2.  In  the  case  of  a  resident  of  the  state  such  a  proportion  of  the 
total  interest  paid  or  accrued  during  the  taxable  year  on  indebted- 
ness, as  the  net  income  of  the  taxpayer  taxable  under  this  article 
bears  to  his  total  income  from  all  sources;  or  in  case  of  an  indi- 
vidual not  a  resident  of  the  state,  the  same  proportion  of  interest 
paid  or  accrued  within  the  taxable  year  on  indebtedness  which  the 
amount  of  such  gross  income,,  as  herein  defined,,  bears  to  the  gross 
amount  of  his  income  from  all  sources  within  and  without  the  state. 
(Source:  New,  but  see  Fed.  Rev.  Act  1918— §  214,  a-2.) 
Interest. — Interest  paid  or  accrued  within  the  year  on  indebtedness 
may  be  deducted  from  gross  income.  But  interest  on  indebtedness  in- 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  275 

curred  or  continued  to  purchase  or  carry  securities,  such  as  municipal 
bonds,  the  interest  upon  which  is  exempt  from  tax,  is  not  deductible. 
However,  this  exception  does  not  apply  to  obligations  of  the  United  States 
issued  after  September  24,  1917,  which  include  the  liberty  bonds  of  the 
second  and  subsequent  issues,  and  interest  on  indebtedness  incurred  to 
purchase  such  obligations  is  deductible  pursuant  to  the  general  rule.  See 
articles  77-80.  Interest  paid  by  the  taxpayer  on  a  mortgage  upon  real 
estate  of  which  he  is  the  legal  or  equitable  owner,  even  though  the  tax- 
payer is  not  directly  liable  upon  the  bond  or  note  secured  by  such  mortgage, 
may  be  deducted  as  interest  on  his  indebtedness.  (Art.  121.) 

Interest  on  capital. — Interest  calculated  as  being  a  charge  against 
income  on  account  of  capital  or  surplus  invested  in  the  business,  but  which 
does  not  represent  a  payment  on  an  interest-bearing  obligation,  is  not  an 
allowable  deduction  from  gross  income;  that  is  to  say,  the  interest  which 
the  money  might  earn  if  otherwise  invested  is  not  a  deductible  charge 
against  income.  (Art.  122.) 

Interest  on  indebtedness  incurred  for  the  payment  of  dividend- 
paying  stock  is  deductible. — Interest  upon  a  note  the  proceeds  of  which 
are  used  to  purchase  dividend-paying  stock  allowable  as  a  deduction. 
(Letter  of  inquiry  from  Harris,  Forbes  &  Company,  New  York,  N.  Y.,  and 
telegram  of  reply  thereto  signed  by  Commissioner  Daniel  C.  Roper,  and 
dated  Nov.  19,  1917.) 

Deductions  allowable:  taxes. 

3.  Taxes  other  than  income  taxes  paid  or  accrued  within  the 
taxable  year  imposed,  first,  by  the  authority  of  the  United  States, 
or  of  any  of  its  possessions,  or,  second,  by  the  authority  of  any 
state,  or  territory,  or  any  county,  school  district,  municipality,  or 
other  taxing  subdivision  of  any  state  or  territory,  not  including 
those  assessed  against  local  benefits  of  a  kind  tending  to  increase 
the  value  of  the  property  assessed  or,  third,  by  the  authority  of 
any  foreign  government. 

(Source:  Fed.  Rev.  Act  1918 — §  214,  a-3.) 

Taxes. — Federal  taxes  (except  income,  war  profits  and  excess  profits 
taxes),  State  and  local  taxes  (except  taxes  assessed  against  local  benefits 
of  a  kind  tending  to  increase  the  value  of  the  property  assessed ) ,  and  taxes 
imposed  by  possessions  of  the  United  States  or  by  foreign  countries  (ex- 
cept the  amount  of  income,  war  profits  and  excess  profits  taxes  allowed 
as  a  credit  against  the  tax),  are  deductible  from  gross  income.  See  sec- 
tion 222  of  the  statute  and  articles  381-384  as  to  tax  credits.  Postage  is 
not  a  tax.  Amounts  paid  to  States  under  secured  debts  laws  in  order  to 
render  securities  tax  exempt  are  deductible.  Automobile  license  fees  are 
ordinarily  taxes.  (Art.  131.) 


276  TAX  ON  PERSONAL  INCOMES  §  360 

Federal  duties  and  excise  taxes. — Import  or  tariff  duties  paid  to  the 
proper  customs  officers,  and  business,  license,  privilege,  excise  and  stamp 
taxes  paid  to  internal  revenue  collectors,  are  deductible  as  taxes  imposed 
by  the  authority  of  the  United  States,  provided  they  are  not  added  to 
and  made  a  part  of  the  expenses  of  the  business  or  the  cost  of  articles  of 
merchandise  with  respect  to  which  they  are  paid,  in  which  case  they  can 
not  be  separately  deducted.  (Art.  132.) 

Taxes  for  local  benefits. — So-called  taxes,  more  properly  assessments, 
paid  for  local  benefits,  such  as  street,  sidewalk  and  other  like  improve- 
ments, imposed  because  of  and  measured  by  some  benefit  inuring  directly 
to  the  property  against  which  the  assessment  is  levied,  do  not  constitute 
an  allowable  deduction  from  gross  income.  A  tax  is  considered  assessed 
against  local  benefits  when  the  property  subject  to  the  tax  is  limited  to 
property  benefited.  Special  assessments  are  not  deductible,  even  though 
an  incidental  benefit  may  inure  to  the  public  welfare.  The  taxes  deductible 
are  those  levied  for  the  general  public  welfare  by  the  proper  taxing  au- 
thorities at  a  like  rate  against  all  property  in  the  territory  over  which 
such  authorities  have  jurisdiction.  *  *  *  When  assessments  are  made 
for  the  purpose  of  maintenance  or  repair  of  local  benefits,  the  taxpayer  may 
deduct  the  assessments  paid  as  an  expense  incurred  in  business,  if  the 
payment  of  such  assessments  is  necessary  to  the  conduct  of  his  business. 
Where  the  assessments  are  made  for  the  purpose  of  constructing  local  ben- 
efits, the  payments  by  the  taxpayer  are  in  the  nature  of  capital  expendi- 
tures and  are  not  deductible.  Where  assessments  are  made  for  the  purpose 
of  both  construction  and  maintenance  or  repairs,  the  burden  is  on  the 
taxpayer  to  show  the  allocation  of  the  amounts  assessed  to  the  different 
purposes.  If  the  allocation  can  not  be  made,  none  of  the  amounts  so  paid 
is  deductible.  (Art.  133.) 

Inheritance  taxes. — State  inheritance  taxes  paid  by  the  executor  or 
administrator  of  an  estate  of  a  deceased  person,  which  are  provided  by 
law  to  be  deducted  from  the  respective  legacies  or  distributive  shares, 
are  not  allowable  deductions  in  computing  the  net  income  of  such  estate 
subject  to  tax,  even  though  the  will  contains  a  direction  to  pay  inheritance 
taxes  out  of  the  residue.  An  inheritance  tax  is  upon  the  transfer  of  the 
property  and  not  upon  the  estate  of  the  decedent  or  upon  the  executor  or 
administrator,  although  the  latter  is  required  to  pay  it.  In  general,  taxes 
paid  or  accrued  within  the  year  imposed  by  the  authority  of  any  State, 
or  otherwise,  are  limited  to  those  imposed  upon  the  taxpayer  and  do  not 
include  taxes  paid  by  him  on  behalf  of  another,  even  though  he  is  required 
by  law  ttf  make  such  payment.  See  articles  565  and  566.  Since,  more- 
over, the  tax  is  imposed  upon  the  transfer  before  the  property  reaches  the 
legatee  or  distributee,  and  merely  diminishes  the  capital  share  of  the 
estate  received  by  him,  such  tax  is  not  imposed  upon  the  legatee  or  dis- 
tributee and  is  not  an  allowable  deduction  from  his  income.  Similarly, 
federal  estate  taxes  are  not  deductible.  (Art.  134.) 

Taxable  status  of  amount  refunded  by  government  in  one  year, 
representing  tax  paid  for  which  credit  has  been  taken  as  a  deduction 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  277 

in  a  previous  year. — Where  a  taxpayer  receives  a  refund  of  taxes  im- 
properly assessed  and  collected  (as,  e.  g.,  Federal  excise  taxes),  he  will 
not  be  required  to  include  in  his  return  for  1918  the  amount  received  as 
refund  of  taxes  erroneously  paid  in  the  preceding  year.  He  should,  how- 
ever, file  an  amended  return  for  1917  and  claim  a  deduction  therein  for 
the  correct  amount  of  taxes  due  for  that  year.  The  further  amount  of 
income  tax  due  for  1917  as  a  result  of  the  reduction  in  the  item  of  taxes 
paid  during  the  year  and  a  letter  of  explanation  should  accompany  the 
amended  return  when  it  is  forwarded  the  Collector  of  Internal  Revenue. 
(Letter  to  The  Corporation  Trust  Company,  signed  by  Commissioner  Daniel 
C.  Roper,  and  dated  January  8,  1919.) 

Deductions  allowable:  losses  in  business  or  trade. 

4.  Losses  sustained  during  the  taxable  year  and  not  compen- 
sated for  by  insurance  or  otherwise,  if  incurred  in  trade  or  business. 

(Source:  Fed.  Rev.  Act  1918— §  214  a-4.  See  also  §  353,  supra,  As- 
certainment of  Gain  or  Loss;  and  §  356,  supra,  Inventories.) 

******* 

Losses  actually  sustained  during  the  year  incurred  in  trade  are  limited 
by  the  language  of  the  act  itself. 

"In  trade,"  is  synonymous  with  business. 

"Business"  has  been  defined  as: 

"That  which  occupies  and  engages  the  time,  attention  and  labor  of 
any  one  for  the  purpose  of  livelihood,  profit,  or  improvement;  that  which 
is  his  personal  concern  or  interest;  employment,  regular  occupation,  but 
it  is  not  necessary  that  it  should  be  his  sole  occupation  or  employment." 

The  doing  of  a  single  act  incidentally  or  of  necessity  not  pertaining  to 
the  particular  business  of  the  person  doing  the  same  will  not  be  considered 
engaging  in  or  carrying  on  the  business.     (T.  D.  1989,  June  2,  1914.) 
******* 

The  term  "in  trade,"  as  used  in  the  law  and  in  Treasury  Decision 
2005,  is  held  to  mean  the  trade  or  trades  in  which  the  person  making  the 
return  is  engaged;  that  is,  in  which  he  has  invested  money  otherwise  than 
for  the  purpose  of  being  employed  in  isolated  transactions,  and  to  which  he 
devotes  at  least  a  part  of  his  time  and  attention.  A  person  may  engage 
in  more  than  one  trade  and  may  deduct  losses  incurred  in  all  of  them, 
provided,  that  in  each  trade  the  above  requirements  are  met.  As  to  losses 
on  stocks,  grain,  cotton,  etc.,  if  these  are  incurred  by  a  person  engaged  in 
trade  to  which  the  buying  or  selling  of  stocks,  etc.,  are  incident  as  a  part 
of  the  business,  as  by  a  member  of  a  stock,  grain,  or  cotton  exchange,  such 
losses  may  be  deducted.  A  person  can  be  engaged  in  more  than  one  busi- 
ness, but  it  must  be  clearly  shown  in  such  cases  that  he  is  actually  a 
dealer,  or  trader,  or  manufacturer,  or  whatever  the  occupation  may  be, 
and  is  actually  engaged  in  one  or  more  lines  of  recognized  businesses  be- 
fore losses  can  be  claimed  with  respect  to  either  or  more  than  one  line  of 


278  TAX   ON   PERSONAL   INCOMES  §  360 

business,  and  his  status  as  such  dealer  must  be  clearly  established.     (T.  D. 

2090,  Dec.  14,  1914.) 

******* 

Neither  the  investment  by  an  individual  of  money  in  the  stock  of  a 
company  nor  the  employment  by  the  company  of  his  services  in  any  offi- 
cial capacity  can  serve  to  make  the  business  in  which  the  company  was 
engaged  a  matter  of  his  individual  trade.  (T.  D.  2135,  Jan.  23,  1915.) 

Shrinkage  in  book  values. — *  *  *  The  loss  considered  here  has  in 
it  no  element  of  "depreciation"  or  "allowance  for  wear  and  tear," 
or  "compensation  from  insurance  or  otherwise."  It  is  to  be  such  loss  as 
is  absolute  and  complete  and  which  has  been  actually  sustained. 

Depreciation  as  an  allowable  deduction  in  ascertaining  annual  net  in- 
come for  the  income  tax  is  separately  provided  for,  and  is  not  to  be 
confused  with  loss.  The  depreciation  provided  to  be  taken  as  a  deduction 
in  a  return  of  income  is  the  value  assigned  to  the  deterioration  of  physical 
improvements  or  assets,  such  as  are  susceptible  of  having  their  value 
lessened  through  wear  and  tear,  use  or  obsolescence. 

The  depreciation  referred  to  in  the  income  tax  law  does  not  relate  to 
evidence  of  a  right  or  interest  in  property,  and  hence,  any  shrinkage  in 
the  value  of  bonds,  stocks  and  like  securities,  due  to  fluctuations  in  their 
market  value,  is  not  deductible  in  a  return  of  income  as  depreciation  or 
loss. 

Losses  may  be  sustained  by  individuals  or  corporations  on  personal  or 
real  property.  *  *  *  (T.  D.  2005,  July  8,  1914.) 

Book  values  which  reflect  a  shrinkage  in  the  value  of  assets  are  not 
a  basis  for  determining  taxable  income.  (T.  D.  2090,  Dec.  14,  1914.) 

Losses  on  judgment.— Any  amount  paid  pursuant  to  judgment  or 
otherwise  on  account  of  damages  is  deductible  from  gross  income  to  the 
extent  of,  and  when  the  amount  is  actually  paid,  less  any  amount  of  such 
damages  as  may  have  been  compensated  for  by  insurance.  (Art.  158,  Reg. 
33,  Rev.,  Jan.  2,  1918.) 

(2)  A  loss  is  none  the  less  actual  because  an  individual  can  not  divest 
himself  of  the  possession  of  worthless  stock  by  sale,  but  that  condition 
alone  does  not  give  the  loss  in  question  such  a  character  as  appears  to 
the  department  to  have  been  contemplated  by  the  income-tax  law.  (T.  D. 
2135,  Jan.  23,  1915.) 

Deductions  allowable:  losses,  not  in  business  or  trade. 

5.  Losses  sustained  during  the  taxable  year  and  not  compen- 
sated for  by  insurance  or  otherwise,,  if  incurred  in  any  transaction 
entered  into  for  profit^  though  not  connected  with  the  trade  or 
business;  but  in  the  case  of  a  taxpayer  other  than  a  resident  of  the 
state,  only  as  to  such  transactions  within  the  state. 

(Source:  Fed.  Rev.  Act  1918,  §  214,  a-5.) 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  279 

Loss — Definition. — The  difference  between  "losses  *  *  *  incurred 
in  his  business  or  trade"  and  losses  "in  transactions  entered  into  for 
profit  but  not  connected  with  his  business  or  trade"  is  illustrated  by  the 
difference  between  the  definitions  of  "avocation":  That  which  takes  one 
from  his  regular  calling;  a  minor  occupation;  and  "vocation":  The  occu- 
pation or  pursuit  to  which  one  devotes  his  time  or  life,  a  calling.  It  is 
possible  for  a  man  to  give  sufficient  time,  attention,  and  capital  to  the 
pursuit  of  different  lines  of  business  to  constitute  more  than  one  avenue 
of  "business  or  trade  or  employment,"  his  business  or  trade. 

Deductions  allowable:  losses  from  fire,  etc. 

6.  Losses  sustained  during  the  taxable  year  of  property  not  con- 
nected with  the  trade  or  business  (but,  in  the  case  of  a  taxpayer 
other  than  a  resident,  only  of  property  within  the  state)  if  arising 
from  fires,  storms,  shipwrecks,  or  other  casualty  or  from  theft,  and 
not  compensated  for  by  insurance  or  otherwise. 

(Source:  Fed.  Rev.  Act  1918,  §  214,  a-6.) 

Losses. — Losses  sustained  during  the  taxable  year  and  not  compensated 
for  by  insurance  or  otherwise  are  fully  deductible  (except  by  non-resident 
aliens)  if  (a)  incurred  in  the  taxpayer's  trade  or  business,  or  (&)  in- 
curred in  any  transaction  entered  into  for  profit,  or  (c)  arising  from 
fires,  storms,  shipwreck  or  other  casualty,  or  from  theft.  They  must 
usually  be  evidenced  by  closed  and  completed  transactions.  In  the  case 
of  the  sale  of  assets  the  loss  will  be  the  difference  between  the  cost  thereof, 
less  depreciation  sustained  since  acquisition,  or  the  fair  market  value  as 
of  March  1,  1913,  if  acquired  before  that  date,  less  depreciation  since 
sustained,  and  the  price  at  which  they  were  disposed  of.  See  section  202 
of  the  statute  and  articles  39-46  and  1561.  When  the  loss  is  claimed 
through  the  destruction  of  property  by  fire,  flood  or  other  casualty,  the 
amount  deductible  will  be  the  difference  between  the  cost  of  the  property 
or  its  fair  market  value  as  of  March  1,  1913,  and  the  salvage  value  there- 
of, after  deducting  from  the  cost  or  value  as  of  March  1,  1913,  the  amount, 
if  any,  which  has  been  or  should  have  been  set  aside  and  deducted  in  the 
current  year  and  previous  years  from  gross  income  on  account  of  depre- 
ciation and  which  has  not  been  paid  out  in  making  good  the  depreciation 
sustained.  But  the  loss  should  be  reduced  by  the  amount  of  any  insurance 
or  other  compensation  received.  See  articles  49  and  50.  A  loss  in  the 
sale  of  an  individual's  residence  is  not  deductible.  Losses  in  illegal  transac- 
tions are  not  deductible.  (Art.  141.) 

Voluntary  removal  of  buildings. — Loss  due  to  the  voluntary  removal 
or  demolition  of  old  buildings,  the  scrapping  of  old  machinery,  equipment, 
etc.,  incident  to  renewals  and  replacements  will  be  deductible  from  gross 
income  in  a  sum  representing  the  difference  between  the  cost  of  such  prop- 
erty demolished  or  scrapped  and  the  amount  of  a  reasonable  allowance  for 
the  depreciation  which  the  property  had  undergone  prior  to  its  demolition 


280  TAX   ON   PERSONAL   INCOMES  §  360 

or  scrapping;  that  is  to  say,  the  deductible  loss  is  only  so  much  of  the 
original  cost  of  the  property,  less  salvage,  as  would  have  remained  unex- 
tinguished  had  a  reasonable  allowance  been  charged  off  for  depreciation 
during  each  year  prior  to  its  destruction.  When  a  taxpayer  buys  real 
estate  upon  which  is  located  a  building  which  he  proceeds  to  raze  with 
a  view  to  erecting  thereon  another  building,  it  will  be  considered  that 
the  taxpayer  has  sustained  no  deductible  loss  by  reason  of  the  demolition 
of  the  old  building,  and  no  deductible  expense  on  account  of  the  cost  of 
such  removal,  the  value  of  the  real  estate,  exclusive  of  old  improvements, 
being  presumably  equal  to  the  purchase  price  of  the  land  and  building  plus 
the  cost  of  removing  the  useless  building.  (Art.  142.) 

Loss  of  useful  value. — When  through  some  change  in  business  condi- 
tions the  usefulness  in  the  business  of  some  or  all  of  the  capital  assets 
is  suddenly  terminated,  so  that  the  taxpayer  discontinues  the  business  or 
discards  such  assets  permanently  from  use  in  the  business,  he  may  claim 
as  a  loss  for  the  year  in  which  he  takes  such  action  the  difference  be- 
tween the  cost  or  the  fair  market  value  as  of  March  1,  1913,  of  any 
asset  so  discarded  (less  any  depreciation  allowances)  and  its  salvage 
value  remaining.  This  exception  to  the  rule  requiring  a  sale  or  other 
disposition  of  property  in  order  to  establish  a  loss  requires  proof  of 
some  unforeseen  cause  by  reason  of  which  the  property  must  be  prema- 
turely discarded,  as,  for  example,  where  machinery  or  other  property 
must  be  replaced  by  a  new  invention,  or  where  an  increase  in  the  cost 
of  or  other  change  in  the  manufacture  of  any  product  makes  it  necessary 
to  abandon  such  manufacture,  to  which  special  machinery  is  exclusively 
devoted,  or  where  new  legislation  directly  or  indirectly  makes  the  con- 
tinued profitable  use  of  the  property  impossible.  This  exception  does  not 
extend  to  a  case  where  the  useful  life  of  property  terminates  solely  as  a 
result  of  those  gradual  processes  for  which  depreciation  allowances  are 
authorized.  It  does  not  apply  to  inventories  or  to  other  than  capital 
assets.  The  exception  applies  to  buildings  only  when  they  are  permanent- 
ly abandoned  or  permanently  devoted  to  a  radically  different  use,  and 
to  machinery  only  when  its  use  as  such  is  permanently  abandoned.  Any 
loss  to  be  deductible  under  this  exception  must  be  charged  off  on  the  books 
and  fully  explained  in  returns  of  income.  (Art.  143.) 

Shrinkage  in  securities  and  stocks.— A  person  possessing  securities, 
such  as  stocks  and  bonds,  can  not  deduct  from  gross  income  any  amount 
claimed  as  a  loss  on  account  of  the  shrinkage  in  value  of  such  securities 
through  fluctuation  of  the  market  or  otherwise.  The  loss  allowable  in 
such  cases  is  that  actually  suffered  when  the  securities  mature  or  are  dis- 
posed of.  See,  however,  article  154.  In  the  case  of  banks  or  other  cor- 
porations which  are  subject  to  supervision  by  State  or  federal  authori- 
ties, and  which  in  obedience  to  the  orders  of  such  supervisory  officers 
charge  off  as  losses  amounts  representing  an  alleged  shrinkage  in  the 
value  of  property,  the  amounts  so  charged  off  do  not  constitute  allowable 
deductions.  The  foregoing  applies  only  to  owners  and  investors,  and  not 
to  dealers  in  securities,  as  to  whom  see  article  1585.  However,  if  stock 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  281 

of  a  corporation  becomes  worthless,  its  cost  or  its  fair  market  value  as  of 
March  1,  1913,  if  acquired  prior  thereto,  may  be  deducted  by  the  owner 
in  the  taxable  year  in  which  the  stock  was  ascertained  to  be  worthless 
and  charged  off,  provided  a  satisfactory  showing  of  its  worthlessness 
be  made  as  in  the  case  of  bad  debts.  (Art.  144.) 

Losses  of  farmers. — Losses  incurred  in  the  operation  of  farms  as 
business  enterprises  are  deductible  from  gross  income.  If  farm  products 
are  *held  for  favorable  markets,  no  deduction  on  account  of  shrinkage  in 
weight  or  physical  value  or  by  reason  of  deterioration  in  storage  shall  be 
allowed.  The  tofal  loss  by  frost,  storm,  flood  or  fire  of  a  prospective  crop, 
or  of  a  crop  which  has  not  been  sold,  is  not  a  deductible  loss  in  computing 
net  income.  A  farmer  engaged  in  raising  and  selling  stock,  cattle,  sheep, 
horses,  etc.,  is  not  entitled  to  claim  as  a  loss  the  value  of  animals  that 
perish  from  among  those  animals  that  were  raised  on  the  farm.  If  live 
stock  has  been  purchased  for  any  purpose,  and  afterwards  dies  from 
disease,  exposure  or  injury,  or  is  killed  by  order  of  the  authorities  of  a 
State  or  the  United  States,  the  actual  purchase  price  of  such  stock,  less 
any  depreciation  which  may  have  been  previously  claimed  with  respect  to 
such  perished  live  stock,  and  less  also  any  insurance  or  indemnity  recov- 
ered, may  be  deducted  as  a  loss.  The  actual  cost  of  other  property,  less 
depreciation  already  allowed,  destroyed  by  order  of  the  authorities  of  a 
State  or  of  the  United  States  may  in  like  manner  be  claimed  as  a  loss; 
but  if  reimbursement  is  made  by  a  State  or  the  United  States  in  whole  or 
in  part  on  account  of  stock  killed  or  property  destroyed,  the  amount  re- 
ceived shall  be  reported  as  income  for  the  year  in  which  reimbursement 
is  made.  In  determining  the  cost  of  stock  for  the  purpose  of  ascertaining 
the  deductible  loss  there  shall  be  taken  into  account  only  the  purchase 
price,  and  not  the  cost  of  any  feed,  pasturage  or  care  which  has  been 
deducted  as  an  expense  of  operation.  If  gross  income  is  ascertained  by 
inventories,  no  deduction  can  be  made  for  live  stock  or  products  lost 
during  the  year,  whether  purchased  for  resale  or  produced  on  the  farm, 
as  such  losses  will  be  reflected  in  the  inventory  by  reducing  the  amount 
of  live  stock  or  products  on  hand  at  the  close  of  the  year.  If  an  individual 
owns  and  operates  a  farm,  in  addition  to  being  engaged  in  another  trade, 
business  or  calling,  and  sustains  a  loss  from  such  operation  of  the  farm, 
then  the  amount  of  loss  sustained  may  be  deducted  from  gross  income  re- 
ceived from  all  sources,  provided  the  farm  is  not  operated  for  recreation 
or  pleasure.  (Art.  145.) 

Deductions  allowable:  bad  debts. 

7.  Debts  ascertained  to  be  worthless  and  charged  off  within  the 
taxable  year. 

(Source:  Fed.  Rev   Act  1918,  §  214,  a-7.) 

Bad  debts. — An  account  merely  written  down  or  a  debt  recognized 
as  worthless  prior  to  the  beginning  of  the  taxable  year  is  not  deductible. 
Where  all  the  surrounding  and  attendant  circumstances  indicate  that  a 


282  TAX   ON   PERSONAL   INCOMES  §  360 

debt  is  worthless  and  uncollectible  and  that  legal  action  to  enforce  pay- 
ment would  in  all  probability  not  result  in  the  satisfaction  of  execution 
on  a  judgment,  a  showing  of  these  facts  will  be  sufficient  evidence  of  the 
worthlessness  of  the  debt  for  the  purpose  of  deduction.  Bankruptcy  may 
or  may  not  be  an  indication  of  the  worthlessness  of  a  debt,  and  actual 
determination  of  worthlessness  in  such  a  case  is  sometimes  possible  be- 
fore and  at  other  times  only  when  a  settlement  in  bankruptcy  shall  have 
been  had.  Where  a  taxpayer  ascertained  a  debt  to  be  worthless  and 
charged  it  off  in  one  year,  the  mere  fact  that  bankruptcy  proceedings  in- 
stituted against  the  debtor  are  terminated  in  a  later  year  confirming  the 
conclusion  that  the  debt  is  worthless  will  not  authorize  shifting  the  de- 
duction to  such  later  year.  In  the  case  of  debts  existing  prior  to  March 
1,  1913,  only  their  value  on  that  date  may  be  deducted  upon  subsequently 
ascertaining  them  to  be  worthless.  See  article  52.  If  a  taxpayer  com- 
putes his  income  upon  the  basis  of  valuing  his  notes  or  accounts  receivable 
at  their  fair  market  value  when  received,  which  may  be  less  than  their 
face  value,  the  amount  deductible  for  bad  debts  in  any  case  is  limited 
to  such  original  valuation.  (Art.  151.) 

Examples  of  bad  debts. — Worthless  debts  arising  from  unpaid  wages, 
salaries,  rents  and  similar  items  of  taxable  income  will  not  be  allowed 
as  a  deduction  unless  the  income  such  items  represent  has  been  included 
in  the  return  of  income  for  the  year  in  which  the  deduction  as  a  bad 
debt  is  sought  to  be  made  or  in  a  previous  year.  Only  the  difference  be- 
tween the  amount  received  in  distribution  of  the  assets  of  a  bankrupt  and 
the  amount  of  the  claim  may  be  deducted  as  a  bad  debt.  The  difference 
between  the  amount  received  by  a  creditor  of  a  decedent  in  distribution 
of  the  assets  of  the  decedent's  estate  and  the  amount  of  his  claim  may  be 
considered  a  worthless  debt.  A  purchaser  of  accounts  receivable  which 
can  not  be  collected  and  are  consequently  charged  off  the  books  as  bad 
debts  is  entitled  to  deduct  them,  the  amount  of  deduction  to  be  based  upon 
the  price  he  paid  for  them  and  not  upon  their  face  value.  (Art.  152.) 

Worthless  mortgage  debt. — Wrhere  under  foreclosure  a  mortgagee  buys 
in  the  mortgaged  property  and  credits  the  indebtedness  with  the  pur- 
chase price,  the  difference  between  the  purchase  price  and  the  indebted- 
ness will  not  be  allowable  as  a  deduction  for  a  bad  debt,  for  the  prop- 
erty which  was  security  for  the  debt  stands  in  the  place  of  the  debt. 
The  determination  of  loss  in  such  a  situation  is  deferred  until  the  prop- 
erty is  disposed  of,  except  where  a  purchase  money  mortgage  is  fore- 
closed by  the  vendor  of  the  property.  See  article  46.  Only  where  a 
purchaser  for  less  than  the  debt  is  another  than  the  mortgagee  may  the 
difference  between  the  debt  and  the  net  proceeds  from  the  sale  be  deducted 
as  a  bad  debt.  (Art.  153.) 

Loss  must  be  definite. — In  the  absence  of  legal  proceedings  to  deter- 
mine the  collectibility  of  a  debt  or  account,  the  question  of  whether  or 
not  it  is  an  asset  without  value  will  depend  largely  upon  the  judgment 
of  the  creditor. 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  283 

Compromise. — Where  an  indebtedness  is  claimed  and  contested  and 
a  settlement  is  had  by  way  of  compromise  whereby  an  amount,  less  than 
the  debt  claimed,  is  accepted  in  full  payment  and  satisfaction  of  the  debt, 
the  difference  between  the  amount  paid  and  that  claimed  is  not  allowable 
as  a  deduction  for  bad  debts.  Where  the  settlement  in  compromise  con- 
sists of  a  promise  to  pay  an  amount  less  than  the  debt  claimed,  the 
amount  promised  to  be  paid  forms  the  basis  of  a  new  transaction,  and 
upon  failure  to  make  good  this  promise  the  question  will  arise  as  to  the 
deductibility  of  the  new  amount  only.  (Art.  8,  Reg.  33,  Rev.,  Jan.  2, 
1918.) 

Worthless  securities. — Where  bonds  purchased  before  March  1,  1913, 
depreciated  in  value  between  the  date  of  purchase  and  that  date,  and 
were  in  a  later  year  ascertained  to  be  worthless  and  charged  off,  the  owner 
is  entitled  to  a  deduction  in  that  year  equal  to  the  value  of  the  bonds 
on  March  1,  1913.  Bonds  purchased  since  February  28,  1913,  when  as- 
certained to  be  worthless,  may  be  treated  as  bad  debts  to  the  amount 
actually  paid  for  them,  but  not  exceeding  their  amortized  value  if  pur- 
chased at  a  premium.  Bonds  of  an  insolvent  corporation  secured  only  by 
a  mortgage  from  which  on  foreclosure  nothing  is  realized  for  the  bond- 
holders are  regarded  as  ascertained  to  be  worthless  not  later  than  the 
year  of  the  foreclosure  sale,  and  no  deduction  for  a  bad  debt  is  allowable 
in  computing  a-  bondholder's  income  for  a  subsequent  year.  To  authorize  a 
deduction  for  a  bad  debt  on  account  of  notes  held  prior  to  March  1,  1913, 
their  value  on  that  date  must  be  established.  (Art.  154.) 

Deductions  allowable:  depreciation. 

8.  A  reasonable  allowance  for  the  exhaustion,  wear  and  tear  of 
property  used  in  the  trade  or  business,  including  a  reasonable  allow- 
ance for  obsolescence. 

(Source:  Fed.  Rev.  Act  1918,  §  214,  0-8.) 

Depreciation.— A  reasonable  allowance  for  the  exhaustion,  wear  and 
tear  and  obsolescence  of  property  used  in  the  trade  or  business  may  be 
deducted  from  gross  income.  For  convenience  such  an  allowance  will 
usually  be  referred  to  as  covering  depreciation,  excluding  from  the  term 
any  idea  of  a  mere  reduction  in  market  value  not  resulting  from  exhaus- 
tion, wear  and  tear  or  obsolescence.  The  proper  allowance  for  such  de- 
preciation of  any  property  used  In  the  trade  or  business  is  that  amount 
which  should  be  set  aside  for  the  taxable  year  in  accordance  with  a 
consistent  plan  by  which  the  aggregate  of  such  amounts  for  the  useful 
life  of  the  property  in  the  business  will  suffice,  with  the  salvage  value, 
at  the  end  of  such  useful  life  to  provide  in  place  of  the  property  its  cost, 
or  its  value  as  of  March  1,  1913,  if  acquired  by  the  taxpayer  before  that 
date.  (Art.  161.) 

Depreciable  property. — The  necessity  for  a  depreciation  allowance 
arises  from  the  fact  that  certain  property  used  in  the  business  gradually 


284  TAX   ON   PERSONAL  INCOMES  §  360 

approaches  a  point  where  its  usefulness  is  exhausted.  The  allowance 
should  be  confined  to  property  of  this  nature.  In  the  case  of  tangible 
property,  it  applies  to  that  which  is  subject  to  wear  and  tear,  to  decay 
or  decline  from  natural  causes,  to  exhaustion,  and  to  obsolescence  due  to 
the  normal  progress  of  the  art  or  to  becoming  inadequate  to  the  growing 
needs  of  the  business.  It  does  not  apply  to  inventories  or  to  stock  in 
trade;  nor  to  land  apart  from  the  improvements  or  physical  development 
added  to  it.  It  does  not  apply  to  bodies  of  minerals  which  through  the 
process  of  removal  suffer  depletion,  other  provision  for  this  being  made 
in  the  statute.  See  articles  201-233.  Property  kept  in  repair  may, 
nevertheless,  be  the  subject  of  a  depreciation  allowance.  See  article  103. 
The  deduction  of  an  allowance  for  depreciation  is  limited  to  property 
used  in  the  taxpayer's  trade  or  business.  No  such  allowance  may  be  made 
in  respect  of  automobiles  or  other  vehicles  used  chiefly  for  pleasure,  a 
building  used  by  the  taxpayer  solely  as  his  residence,  nor  in  respect  of 
furniture  or  furnishings  therein,  personal  effects,  or  clothing;  but  prop- 
erties and  costumes  used  exclusively  in  a  business,  such  as  a  theatrical 
business,  may  be  the  subject  of  a  depreciation  allowance.  (Art.  162.) 

Depreciation  of  intangible  property. — Intangibles,  the  use  of  which 
in  the  trade  or  business  is  definitely  limited  in  duration,  may  be  the 
subject  of  a  depreciation  allowance.  Examples  are  patents  and  copy- 
rights, licenses  and  franchises."  Intangibles,  the  use  of  which  in  the  busi- 
ness or  trade  is  not  so  limited,  will  not  usually  be  a  proper  subject  of 
such  an  allowance.  If,  however,  an  intangible  asset  acquired  through 
capital  outlay  is  known  from  experience  to  be  of  value  in  the  business  for 
only  a  limited  period,  the  length  of  which  can  be  estimated  from  experi- 
ence with  reasonable  certainty,  such  intangible  asset  may  be  the  subject 
of  a  depreciation  allowance,  provided  the  facts  are  fully  shown  in  the  re- 
turn or  prior  thereto  to  the  satisfaction  of  the  Commissioner.  There  can 
be  no  such  allowance  in  respect  of  good  will,  trade  names,  trademarks, 
trade  brands,  secret  formulae  or  processes.  (Art.  163.) 

Capital  sum  recoverable  through  depreciation  allowances. — The 
capital  sum  to  be  replaced  by  depreciation  allowances  is  the  cost  of  the 
property  in  respect  of  which  the  allowance  is  made,  except  that  in  the 
case  of  property  acquired  by  the  taxpayer  prior  to  March  1,  1913,  the 
capital  sum  to  be  replaced  is  the  fair  market  value  of  the  property  as  of 
that  date.  In  the  absence  of  proof  to  the  contrary,  it  will  be  assumed 
that  such  value  as  of  March  1,  1913,  is  the  cost  of  the  property  less  de- 
preciation up  to  that  date.  To  this  sum  should  be  added  from  time  to 
time  the  cost  of  improvements,  additions  and  betterments,  the  cost  of 
which  is  not  deducted  as  an  expense  in  the  taxpayer's  return,  and  from  it 
should  be  deducted  from  time  to  time  the  amount  of  any  definite  loss 
or  damage  sustained  by  the  property  through  casualty,  as  distinguished 
from  the  gradual  exhaustion  of  its  utility  which  is  the  basis  of  the  de- 
preciation allowance.  In  the  case  of  the  acquisition  after  March  1,  1913, 
of  a  combination  of  depreciable  and  nondepreciable  property  for  a  lump 
price,  as,  for  example,  land  and  buildings,  the  capital  sum  to  be  re- 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  285 

placed  is  limited  to  that  part  of  the  lump  price  which  represents  the 
value  of  the  depreciable  property  at  the  time  of  such  acquisition.  (Art. 
164.) 

Method  of  computing  depreciation  allowance. — The  capital  sum  to 
be  'replaced  should  be  charged  off  over  the  useful  life  of  the  property 
either  in  equal  annual  installments  or  in  accordance  with  any  other  recog- 
nized trade  practice,  such  as  an  apportionment  of  the  capital  sum  over 
units  of  production.  Whatever  plan  or  method  of  apportionment  is 
adopted  must  be  reasonable  and  should  be  described  in  the  return. 
(Art.  165.) 

Modification  of  method  of  computing  depreciation. — If  it  develops 
that  the  useful  life  of  the  property  has  been  underestimated,  the  plan  of 
computing  depreciation  should  be  modified  and  the  balance  of  the  cost 
of  the  property,  or  its  fair  market  value  as  of  March  1,  1913,  not  already 
provided  for  through  a  depreciation  reserve  or  deducted  from  book  value, 
should  be  spread  over  the  estimated  remaining  life  of  the  property.  A  tax- 
payer who  in  computing  depreciation  allowances  in  returns  for  years 
prior  to  1918  has  not  taken  ordinary  obsolescence  into  consideration  may 
for  the  year  1918  and  subsequent  years  revise  the  estimate  of  the  useful 
life  of  any  property  so  as  to  allow  for  such  future  obsolescence  as  may 
be  expected  from  experience  to  result  from  the  normal  progress  of  the 
art.  No  modification  of  the  method  should  be  made  on  account  of  changes 
in  the  market  value  of  the  property  from  time  to  time,  such  as,  on  the 
one  hand,  loss  in  rental  value  of  buildings  due  to  deterioration  of  the 
neighborhood,  or,  on  the  other,  appreciation  due  to  increased  demand. 
The  conditions  affecting  such  market  values  should  be  taken  into  con- 
sideration only  so  far  as  they  affect  the  estimate  of  the  useful  life  of  the 
property.  (Art.  166.) 

Depreciation  of  patent  or  copyright. — In  computing  a  depreciation  al- 
lowance in  the  case  of  a  patent  or  copyright,  the  capital  sum  to  be  re- 
placed is  the  cost  (not  already  deducted  as  current  expense)  of  the  patent 
or  copyright  or  its  fair  market  value  as  of  March  1,  1913,  if  acquired 
prior  thereto.  The  allowance  should  be  computed  by  an  apportionment  of 
the  cost  of  the  patent  or  copyright  or  of  its  fair  market  value  as  of 
March  1,  1913,  over  the  life  of  the  patent  or  copyright  since  its  grant, 
or  since  its  acquisition  by  the  taxpayer,  or  since  March  1,  1913,  as  the 
case  may  be.  If  the  patent  or  copyright  was  acquired  from  the  Govern- 
ment, its  cost  consists  of  the  various  Government  fees,  cost  of  drawings, 
experimental  niodels,  attorney's  fees,  etc.,  actually  paid.  If  a  corporation 
purchased  a  patent  and  paid  for  it  in  stock  or  securities,  its  cost  is  the 
fair  market  value  of  the  stock  or  securities  at  the  time  of  the  purchase. 
Depreciation  of  a  patent  can  be  taken  on  the  basis  of  the  fair  market 
value  as  of  March  1,  1913,  only  when  affirmative  and  satisfactory  evi- 
dence of  such  value  is  offered.  Such  evidence  should  whenever  practicable 
be  submitted  with  the  return.  If  the  patent  becomes  obsolete  prior  to  its 
expiration  such  proportion  of  the  amount  on  which  its  depreciation  may 


286  TAX  ON  PERSONAL  INCOMES  §  360 

be  Based  as  the  number  of  years  of  its  remaining  life  bears  to  the  whole 
number  of  years  intervening  between  the  date  when  it  was  acquired  and 
the  date  when  it  legally  expires  may  be  deducted,  if  permission  so  to  do  is 
specifically  secured  from  the  Commissioner.  Owing  to  the  difficulty  of 
allocating  to  a  particular  year  the  obsolescence  of  a  patent,  such  permis- 
sion will  be  granted  only  if  affirmative  and  satisfactory  evidence  that  the 
obsolescence  occurred  in  the  year  for  which  the  return  is  made  is  sub- 
mitted to  the  Commissioner.  The  fact  that  depreciation  has  not  been 
taken  in  prior  years  does  not  entitle  the  taxpayer  to  deduct  in  any 
taxable  year  a  greater  amount  for  depreciation  than  would  otherwise  be 
allowable.  (Art.  167.) 

Depreciation  of  drawings  and  models. — A  taxpayer  who  has  incurred 
expenses  in  his  business  for  designs,  drawings,  patterns,  models,  or  work 
of  an  experimental  nature  calculated  to  result  in  improvement  of  his  facili- 
ties or  his  product,  may  at  his  option  deduct  such  expenses  from  gross 
income  for  the  taxable  year  in  which  they  are  incurred  or  treat  such  arti- 
cles as  a  capital  asset  to  the  extent  of  the  amount  so  expended.  In  the 
latter  case,  if  the  period  of  usefulness  of  any  such  asset  may  be  esti- 
mkted  from  experience  with  reasonable  accuracy,  it  may  be  the  subject  of 
depreciation  allowances  spread  over  such  estimated  period  of  usefulness. 
The  facts  must  be  fully  shown  in  the  return  or  prior  thereto  to  the  satis- 
faction of  the  Commissioner.  Except  for  such  depreciation  allowances  no 
deduction  shall  be  made  by  the  taxpayer  against  any  sum  so  set  up  as  an 
asset  except  on  the  sale  or  other  disposition  of  such  assets  at  a  loss  or  on 
proof  of  a  total  loss  thereof.  (Art.  168.) 

Charging  off  depreciation. — A  depreciation  allowance,  in  order  to  con- 
stitute an  allowable  deduction  from  gross  income,  must  be  charged  off. 
The  particular  manner  in  which  it  shall  be  charged  off  is  not  material, 
except  that  the  amount  measuring  a  reasonable  allowance  for  deprecia- 
tion must  be  either  deducted  directly  from  the  book  value  of  the  assets 
or  preferably  credited  to  a  depreciation  reserve  account,  which  must  be  re- 
flected in  the  annual  balance  sheet.  The  allowances  should  be  computed 
and  charged  off  with  express  reference  to  specific  items,  units  or  groups 
of  property,  each  item  or  unit  being  considered  separately  or  specifically 
included  in  a  group  with  others  to  which  the  same  factors  apply.  The 
taxpayer  should  keep  such  records  as  to  each  item  or  unit  of  depreciable 
property  as  will  permit  the  ready  verification  of  the  factors  used  in 
computing  the  allowance  for  each  year  for  each  item,  unit  or  group. 
(Art.  169.) 

Closing  depreciation  account. — If  the  use  of  any  property  in  the  busi- 
ness is  permanently  discontinued,  although  no  sale  or  other  disposition  of 
the  property  has  taken  place,  a  determination  of  any  gain  or  loss  may  be 
made;  but  any  deduction  in  respect  of  any  loss  thereon  must  be  disclosed 
in  the  taxpayer's  return  for  the  year  in  which  the  determination  is  made 
and  a  full  statement  of  the  facts  and  the  basis  upon  which  the  computa- 
tion is  calculated  must  be  attached  to  the  return.  Upon  a  sale  or  other 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  287 

disposition  of  the  property,  the  consideration  received  shall  be  compared 
with  the  amount  of  the  estimated  salvage  value  used  in  computing  the 
gain  or  loss  as  above  provided,  and  the  amount  of  the  difference  shall  be 
treated  as  a  gain  or  loss,  as  the  case  may  be,  of  the  year  in  which  the 
sale  or  other  disposition  was  made.  (Art.  170.) 

Depreciation  in  the  case  of  farmers. — A  reasonable  allowance  for  de- 
preciation may  be  claimed  on  farm  buildings  (other  than  a  dwelling  oc- 
cupied by  the  owner),  farm  machinery  and  other  physical  property,  in- 
cluding live  stock  purchased  for  draft,  dairy  or  breeding  purposes,  but  no 
claim  for  depreciation  on  live  stock  raised,  or  purchased  for  resale,  will 
be  allowed.  Live  stock  purchased  for  draft,  breeding  or  dairy  purposes, 
or  for  any  purpose  other  than  resale,  may  be  included  in  the  inventory 
for  each  year  at  a  figure  which  will  reflect  the  reduction  in  value  estimated 
to  have  occurred  during  the  year  through  increase  of  age  or  other  causes. 
Such  a  reduction  in  value  should  be  based  on  the  cost  and  estimated  life 
of  the  live  stock.  If  an  inventory  is  not  used,  a  reasonable  allowance 
for  depreciation  may  be  claimed  based  upon  the  cost  of  draft  and  work 
animals  and  animals  kept  solely  for  breeding  purposes  and  not  for 
resale.  (Art.  171.) 

Rate  for  computing. — No  definite  rate  has  been  fixed  by  which  an 
allowable  deduction  on  account  of  depreciation  in  the  value  of  any  class 
of  property  subject  to  wear  and  tear  is  to  be  computed,  but  it  is  con- 
templated that  this  allowance  shall  be  computed  upon  the  basis  of  the 
cost  of  the  property  and  the  probable  number  of  years  constituting  its  life. 
The  deduction  to  be  allowed  relates  solely  to  loss  due  to  use,  wear  and 
tear,  and  the  matter  of  obsolescence  is  not  relevant,  inasmuch  as  when  the 
property  becomes  obsolete  a  deduction  for  the  loss  sustained  thereby, 
representing  the  difference  between  the  cost  and  the  amount  of  deprecia- 
tion previously  charged  off  or  which  should  have  been  charged  off  in 
prior  years,  will  be  allowed.  (See  Arts.  178  and  179.)  (Art.  162,  Reg. 
33,  Rev.,  Jan.  2,  1918.) 

Rate  based  upon  life. — In  the  case  of  buildings  the  deduction  on  ac- 
count of  depreciation  shall  not  include  any  allowance  for  an  estimated 
loss  due  to  lessening  of  rental  value,  nor  shall  the  computation  of  the  de- 
duction be  influenced  by  the  changed  environment  after  a  period  of  years, 
nor  by  its  lack  of  adaptability  to  the  use  originally  intended  nor  to  any 
other  outside  influence  affecting  its  value  but  an  allowable  depreciation 
shall  be  determined  solely  upon  the  estimated  life  of  such  buildings  after 
making  due  allowance  for  ordinary  repairs,  the  cost  of  which  may  be  de- 
ducted as  expenses  for  maintenance  and  operation.  (Art.  162,  Reg.  33, 
Rev.,  Jan.  2,  1918.) 

The  appended  charge  of  the  court  to  the  jury  in  the  District  Court  of 
the  United  States  for  the  Southern  District  of  New  York,  in  the  case  of 
Hyman  Cohen  v.  John  Z.  Lowe,  collector,  is  published  for  the  information 
of  internal-revenue  officers  and  others  concerned.  (T.  D.  2343,  June  14, 
1916.) 


288  TAX  ON   PERSONAL  INCOMES  §  360 

Summary  of  charge. 

1.  Depreciation  Depends  on  Life  of  Building. 

The  physical  loss  or  deterioration  a  building  suffers  during  the  tax 
year  depends  on  the  life  of  the  building;  how  many  years  it  would  re- 
main so  as  to  be  habitable  for  general  purposes  for  which  it  was  con- 
structed. 

2.  Yearly  Deductions. 

The  average  amount  of  deduction  each  year  covers  the  annual  per- 
centage. 

3.  Deductions  for  Improvements. 

When  allowance  is  made  for  depreciation  of  a  building  no  deduction 
shall  be  allowed  for  expense  of  restoring  the  building  or  making  good  the 
exhaustion  thereof. 

4.  Exhaustion,  Wear  and  Tear. 

The  words  "exhaustion,  wear  and  tear"  of  a  building  contemplate  only 
depreciation  of  the  physical  property  itself,  irrespective  of  its  adaptability 
to  the  use  originally  intended  or  the  changing  environments. 

5.  Decrease  in  Rental  Value. 

No  allowance  can  be  made  for  depreciation  by  reason  of  decrease  in 
rental  value  nor  in  value  arising  from  lack  of  modern  improvements. 

Opinion  of  the  Court  in  the  Above  Case. 
[234  Fed.  474.] 

The  plaintiff  was  allowed  3  per  cent  for  depreciation  on  an  apartment 
house  owned  by  him.  The  burden  is  on  him  to  show  that  the  depreciation 
so  allowed  was  too  small.  This  allowance  is  for  the  wear  and  tear 
suffered  by  the  building  during  the  tax  year,  which  means  the  physical 
deterioration  that  the  building  suffered  during  that  period.  It  does  not 
take  into  account  depreciation  in  value  due  to  a  loss  in  rental  value  be- 
cause of  the  construction  of  more  modern  buildings  with  improved  facili- 
ties or  due  to  a  change  in  the  neighborhood.  It  is  to  be  based  upon  the 
life  of  the  building  in  the  sense  of  the  number  of  years  the  building 
would  remain  in  a  condition  to  be  habitable  for  the  use  for  which  it 
was  constructed  and  used;  and  which  was  in  the  instant  case  for  an  apart- 
ment house,  and  not  merely  the  number  of  years  it  would  stand  without 
being  condemned  and  torn  down.  The  annual  depreciation  would  be  an 
amount  represented  by  a  fraction  having  one  (tax  year)  for  the  numerator 
and  the  number  of  years,  representing  the  ascertained  life  of  the  building, 
as  the  denominator.  This  assumes  that  there  would  be  an  average  de- 
terioration suffered  each  year  during  the  life  of  the  building,  and  that  the 
plaintiff  would  keep  the  building  in  good  repair  during  the  life  of  it. 
This  the  law  exacts  of  him.  Upon  these  assumptions,  and  giving  this 
meaning  to  the  words  of  the  statute,  "a  reasonable  allowance  for  the 
exhaustion,  wear  and  tear  of  the  property,  arising  out  of  its  use  or  em- 
ployment in  the  business,"  the  amount  of  the  deduction  allowed  by  the 
Government  to  the  plaintiff  on  this  account  is  deemed  to  be  reasonable. 
(234  Fed.  474.) 


§360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  289 

While  each  taxpayer  must  determine  the  probable  lifetime  of  his 
property  without  regard  to  the  following  figures,  it  has  been  estimated  that 
the  average  usable  lifetime  of  a  frame  building  is  25  years,  a  brick  build- 
ing 35  years;  a  stone  building  or  steel  and  concrete  building,  50  to  100 
years.  The  estimated  lifetime  of  ordinary  machinery  is  ten  years,  that 
of  automobiles  used  for  business  or  farm  purposes  and  farm  tractors, 
four  to  five  years. 

If  a  taxpayer  wishes  to  claim  the  full  amount  of  depreciation  estimated 
to  have  occurred  in  the  value  of  a  building,  or  other  property,  used  for 
business  or  trade  purposes,  he  may  do  so,  but  this  precludes  his  claiming 
a  deduction  to  cover  any  amount  expended  during  the  same  year  in  mak- 
ing repairs.  If  he  wishes  to  claim  a  deduction  on  account  of  repairs, 
their  cost  must  be  deducted  from  the  full  amount  of  depreciation,  and 
the  balance  may  then  be  claimed  as  a  deduction  under  the  heading  of 
Depreciation,  that  is,  if  the  taxpayer  expends  $100  in  making  repairs 
to  a  building  which  will  depreciate  in  value  $200  during  the  calendar 
year,  he  may  claim  $100  as  business  expense  and  $100  as  depreciation, 
or  he  may  claim  $200  as  depreciation  and  nothing  for  repairs.  In  short, 
the  aggregate  deductions  claimed  on  account  of  repairs  and  depreciation 
must  not  exceed  the  full  amount  of  depreciation  estimated  to  have  oc- 
curred. 

Use  of  depreciation  reserve. — Depreciation  set  up  on  the  books  and  de- 
ducted from  gross  income  can  not  be  used  for  any  purposes  other  than 
in  making  good  the  loss  sustained  by  reason  of  the  wear  and  tear  of  the 
property  with  respect  to  which  it  is  claimed. 

If,  however,  an  investment  is  made  in  extensions,  additions,  or  better- 
ments of  the  company's  own  property,  representing  a  part  or  the  whole 
of  the  credit  balance  of  the  depreciation  reserve  account,  such  investment 
will  not  be  considered  a  misuse  or  diversion  of  the  depreciation  deduction 
otherwise  allowable.  (Art.  164,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Depreciation  allowance  when  plant  is  regularly  operated  in  twa 
shifts  or  continuously. — It  is  obvious  that  in  a  case  where  machinery 
and  equipment  are  operated  more  than  the  usual  number  of  working 
hours,  a  greater  rate  of  depreciation  would  be  applicable  in  determining 
the  actual  loss  sustained  by  a  corporation  due  to  depreciation  than  would 
be  the  case  in  the  event  that  the  machinery  was  only  operated  eight  or 
nine  hours  as  the  normal  time.  *  *  *  (Letter  to  E.  G.  Shorrock  & 
Co.,  Seattle,  Wash.,  signed  by  Deputy  Commissioner  L.  F.  Speer,  and 
dated  July  12,  1918.) 

Unearned  increment. — Unearned  increment  will  not  be  considered  in 
fixing  the  value  on  which  depreciation  shall  be  based.  (Art.  146,  Reg. 
33,  Jan.  5,  1914.) 

Deductions  allowable:  depletion  of  mines,  wells,  timber. 

9.  In  the  case  of  mines,  oil  and  gas  wells,  other  natural  deposits 
and  timber,  a  reasonable  allowance  for  depletion  and  for  deprecia- 


290  TAT   ON  PERSONAL  INCOMES  §  360 

tion  of  improvements,  according  to  the  peculiar  conditions  in  each 
case,  based  upon  cost  including  cost  of  development  not  otherwise 
deducted;  provided,  that  in  the  case  of  such  properties  acquired 
prior  to  January  first,  nineteen  hundred  and  nineteen,  the  fair 
market  value  of  the  property  (or  the  taxpayer's  interest  therein)  on 
that  date  shall  be  taken  in  lieu  of  cost  up  to  that  date;  provided, 
further,  that  in  the  case  of  mines,  oil  and  gas  wells,  discovered  by 
the  taxpayer  on  or  after  January  first,  nineteen  hundred  and  nine- 
teen, and  not  acquired  as  the  result  of  a  purchase  of  a  proven  tract 
or  lease,  where  the  fair  market  value  of  the  property  is  materially 
disproportionate  to  the  cost,  the  depletion  allowance  shall  be  based 
upon  the  fair  market  value  of  the  property  at  the  date  of  the  dis- 
covery or  within  thirty  days  thereafter;  such  reasonable  allowance 
in  all  the  above  cases  to  be  made  under  rules  and  regulations  to  be 
prescribed  by  the  comptroller.  In  the  case  of  leases  the  deductions 
allowed  by  this  paragraph  shall  be  equitably  apportioned  between 
the  lessor  and  lessee. 

(Source:  Fed.  Rev.  Act  1918,  §  214,  a-10.) 

Depletion  of  mines,  oil  and  gas  wells. — A  reasonable  deduction  from 
gross  income  for  the  depletion  of  natural  deposits  and  for  the  deprecia- 
tion of  improvements  is  permitted,  based  (a)  upon  cost,  if  acquired  after 
February  28,  1913,  or  (6)  upon  the  fair  market  value  as  of  March 
1,  1913,  if  acquired  prior  thereto,  or  (c)  upon  the  fair  market  value  within 
30  days  after  the  date  of  discovery  in  the  case  of  mines,  oil  and  gas 
wells  discovered  by  the  taxpayer  after  February  28,  1913,  where  the  fair 
market  value  is  materially  disproportionate  to  the  cost.  The  essence  of 
this  provision  is  that  the  owner  of  such  property,  whether  it  be  a  lease- 
hold or  freehold,  shall  secure  through  an  aggregate  of  annual  depletion 
and  depreciation  deductions  a  return  of  the  amount  of  capital  invested 
by  him  in  the  property,  or  in  lieu  thereof  an  amount  equal  to  the  fair 
market  value  as  of  March  1,  1913,  of  the  properties  owned  prior  to  that 
date,  or  an  amount  equal  to  the  fair  market  value  within  30  days  after 
the  date  of  discovery  of  mines,  oil  or  gas  wells  discovered  by  the  tax- 
payer on  or  after  March  1,  1913,  and  not  acquired  as  the  result  of  pur- 
chase of  a  proven  tract  or  lease,  where  the  fair  market  value  of  the 
property  is  materially  disproportionate  to  the  cost;  plus  in  any  case  the 
subsequent  cost  of  plant  and  equipment  (less  salvage  value)  and  under- 
ground and  overground  development,  which  is  not  chargeable  to  current 
operating  expense,  but  not  including  land  values  for  purposes  other  than 
the  extraction  of  minerals.  Operating  owners,  lessors  and  lessees  are  en- 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  291 

titled  to  deduct  an  allowance  for  depletion,  but  a  stockholder  in  a  mining 
or  oil  or  gas  corporation  is  not.     (Art.  201.) 

Capital  recoverable  through  depletion  allowance  in  the  case 
of  owner. — In  the  case  of  an  operating  owner  in  fee  or  a  lessor  the 
capital  remaining  in  any  year  recoverable  through  depletion  allowances 
is  the  sum  of  (a)  the  cost  of  the  property,  or  its  fair  market  value  as  of 
March  1,  1913,  or  its  fair  market  value  within  30  days  after  discovery, 
as  the  case  may  be,  plus  (6)  the  cost  of  subsequent  improvements  and  de- 
velopment not  charged  to  current  operating  expenses,  but  minus  (c)  de- 
ductions for  depletion  which  has  or  should  have  been  taken  to  date  and 
(d)  the  portion  of  the  capital  account,  if  any,  as  to  which  depreciation 
has  been  and  is  being  deducted  instead  of  depletion.  The  value  of  the 
surface  of  the  land  should  be  taken  into  consideration.  In  no  case,  how- 
ever, may  a  lessor  include  in  his  capital  recoverable  through  such  an  al- 
lowance any  part  of  development  costs  not  borne  by  the  lessor  nor  any 
part  of  the  discovery  value.  (Art.  202.) 

Capital  recoverable  through  depletion  allowance  in  the  case  of 
lessee. — In  the  case  of  a  lessee  the  capital  remaining  in  any  year  re- 
coverable through  depletion  allowances  is  the  sum  of  (a)  the  cost  of 
the  leasehold,  or  its  fair  market  value  as  of  March  1,  1913,  or  its  fair 
market  value  within  30  days  after  discovery,  as  the  case  may  be,  plus 
(6)  the  cost  of  subsequent  improvements  and  development  not  charged  to 
current  operating  expenses,  but  minus  (c)  deductions  for  depletion  which 
has  or  should  have  been  taken  to  date  and  (d)  the  portion  of  the  capital 
account,  if  any,  as  to  which  depreciation  has  been  and  is  being  deducted 
instead  of  depletion.  Any  annual  or  periodical  rents  or  royalties  sup- 
plementing the  bonus  or  other  amount  paid  for  the  lease  may  be  charged 
to  current  operating  expenses  or,  until  the  property  reaches  the  operating 
stage,  to  capital  account,  and  in  the  latter  event  will  form  part  of  the 
capital  returnable  through  deductions  for  depletion.  (Art.  203.) 

Apportionment  of  deductions  between  lessor  and  lessee.— As  the 
value  of  property  comprehends  the  interests  of  both  lessor  and  lessee,  no 
computation,  for  the  purpose  of  depletion  allowances,  of  the  value  of  these 
interests  separately  as  of  any  date  which  combined  exceeds  the  value  of 
the  property  in  fee  simple  will  be  permitted.  The  same  principle  applies 
to  holders  of  fractional  interests.  If  the  aggregate  deduction  claimed 
is  deemed  excessive,  the  Commissioner  may  request  the  owner  or  lessee  to 
show  that  the  valuation  claimed  does  not  exceed  the  fair  market  value 
of  the  property  at  a  specified  date  determined  in  the  manner  explained  in 
article  206.  The  lessor  and  lessee  shall,  with  the  approval  of  the  Com- 
missioner, equitably  apportion  the  allowance  in  the  light  of  the  peculiar 
conditions  in  each  case  and  on  the  basis  of  their  respective  interests  there- 
in. To  the  return  of  every  taxpayer  claiming  an  allowance  for  depletion 
in  respect  of  (a)  property  in  which  he  owns  a  fractional  interest  only  or 
(6)  a  leasehold  or  (c)  property  subject  to  a  lease,  there  shall  be  attached 
a  statement  setting  forth  the  name  and  address  and  the  precise  nature  of 
the  holdings  of  each  person  interested  in  the  property.  (Art.  204.) 


292  TAX   ON  PERSONAL  INCOMES  §  360 

Determination  of  cost  of  deposits. — In  any  case  in  which  a  depletion 
or  depreciation  deduction  is  computed  on  the  basis  of  the  cost  or  price 
at  which  any  mine,  mineral  deposit,  mineral  right  or  leasehold  was  ac- 
quired, the  owner  or  lessee  will  be  required  upon  request  of  the  Commis- 
sioner to  show  that  the  co&t  or  price  at  which  the  property  was  bought 
was  fixed  for  the  purpose  of  a  bona  fide  purchase  and  sale,  by  which  the 
property  passed  to  an  owner  in  fact  as  well  as  in  form  different  from  the 
vendor.  No  fictitious  or  inflated  cost  or  price  will  be  permitted  to  form 
the  basis  of  any  calculation  of  a  depletion  or  depreciation  deduction,  and 
in  determining  whether  or  not  the  price  or  cost  at  which  any  purchase 
or  sale  was  made  represented  the  actual  market  value  of  the  property 
sold,  due  weight  will  be  given  to  the  relationship  or  connection  existing 
between  the  person  selling  the  property  and  the  buyer  thereof.  (Art.  205.) 

Determination  of  fair  market  value  of  deposits. — Where  the  fair  mar- 
ket value  of  the  property  at  a  specified  date  in  lieu  of  the  cost  thereof 
is  the  basis  for  depletion  and  depreciation  deductions,  such  value  must 
be  determined,  subject  to  approval  or  revision  by  the  Commissioner,  by  the 
owner  of  the  property  in  the  light  of  the  conditions  and  circumstances 
known  at  that  date,  regardless  of  later  discoveries  or  developments  in  the 
property  or  in  methods  of  mining  or  extraction.  The  value  sought  should 
be  that  established  assuming  a  transfer  between  a  willing  seller  and  a 
willing  buyer  as  of  that  particular  date.  No  rule  or  method  of  deter- 
mining the  fair  market  value  of  mineral  property  is  prescribed,  but  the 
Commissioner  will  lend  due  weight  and  consideration  to  any  and  all 
factors  and  evidence  having  a  bearing  on  the  market  value,  such  as  cost, 
actual  sales  and  transfers  of  similar  properties,  market  value  of  stock 
or  shares,  royalties  and  rentals,  value  fixed  by  the  owner  for  purposes  of 
the  capital  stock  tax,  valuation  for  local  or  State  taxation,  partnership 
accountings,  records  of  litigation  in  which  the  value  of  the  property  was 
in  question,  the  amount  at  which  the  property  may  have  been  inventoried 
in  probate  court,  disinterested  appraisals  by  approved  methods,  and  other 
factors.  (Art.  206.) 

Revaluation  of  deposits  not  allowed. — The  cost  of  the  property  or  its 
fair  market  value  at  a  specified  date,  as  the  case  may  be,  plus  subse- 
quent charges  to  capital  account  not  deductible  as  current  expense,  will 
be  the  basis  for  determining  the  depletion  and  depreciation  deductions  for 
each  year  during  the  continuance  of  the  ownership  under  which  the  fair 
market  value  or  cost  was  fixed,  and  during  such  ownership  there  can 
be  no  revaluation  for  the  purpose  of  this  deduction.  This  rule  will  not 
forbid  the  redistribution  of  the  capital  account  over  the  estimated  num- 
ber of  units  remaining  in  the  property  in  accordance  with  either  of  the 
next  two  articles.  (Art.  207.) 

Determination  of  quantity  of  ore  in  mine. — Every  taxpayer  claim- 
ing a  deduction  for  depletion  will  be  required  to  estimate  with  respect  to 
each  separate  property  the  total  units  (tons,  pounds,  ounces  or  other 
units)  of  ores  and  minerals  reasonably  known  or  on  good  evidence  be- 
lieved to  have  existed  in  the  ground  on  March  1,  1913,  or  on  the  date 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  293 

of  acquisition  of  the  property,  or  within  30  days  after  the  date  of  dis- 
covery, as  the  case  may  be.  In  estimating  the  total  units  of  ores  and 
minerals  for  purposes  of  depletion  the  property  must  be  considered  in 
the  condition  in  which  it  was  on  March  1,  1913,  or  the  date  of  acquisition, 
or  within  30  days  after  the  date  of  discovery,  but  if  subsequently  during 
the  ownership  of  the  taxpayer  making  the  return  additional  recoverable 
mineral  deposits  have  been  discovered  or  developed  which  were  not  taken 
into  account  in  estimating  the  number  of  units  for  purposes  of  depletion, 
or  if  it  shall  be  discovered  by  working,  development  or  exploration  that 
ground  previously  estimated  to  contain  commercially  recoverable  mineral 
is  barren  or  contains  only  commercially  unworkable  mineral,  a  new  esti- 
mate of  the  recoverable  units  of  ores  or  minerals  (but  not  of  the  cost  or 
fair  market  value  at  a  specified  date)  shall  be  made  and  when  made  shall 
thereafter  constitute  a  basis  for  depletion.  In  the  selection  of  the  unit 
of  estimate  the  custom  or  practice  applicable  to  the  type  of  mineral  de- 
posit and  the  character  of  the  operations  thereon  should  be  considered. 
The  estimate  of  the  recoverable  units  of  ores  or  minerals  for  the  pur- 
pose of  depletion  shall  include  (a)  the  ores  and  minerals  "in  sight," 
"blocked  out,"  "developed,"  or  "assured,"  in  the  usual  or  conventional 
meaning  of  these  terms  in  respect  to  the  type  of  deposit,  and  may  also 
include  (&)  "prospective"  or  "probable"  ores  and  minerals  (in  the  same 
sense),  that  is,  ores  and  minerals  that  are  believed  to  exist  on  the  basis 
of  good  evidence,  although  not  actually  known  to  occur  on  the  basis  of 
existing  development;  but  "probable"  or  "prospective"  ores  and  minerals 
may  be  computed  for  purposes  of  depletion  only  as  extensions  of  known  de- 
posits into  undeveloped  ground.  (Art.  208.) 

Determination  of  quantity  of  oil  in  ground. — In  the  case  of  either 
an  owner  or  lessee  it  will  be  required  that  an  estimate,  subject  to  the 
approval  of  the  Commissioner,  shall  be  made  of  the  probable  recoverable 
oil  contained  in  the  territory  with  respect  to  which  the  investment  is 
made  as  of  the  time  of  purchase,  or  as  of  March  1,  1913,  if  acquired  prior 
to  that  date,  or  within  30  days  after  the  date  of  discovery,  as  the  case 
may  be.  The  oil  reserves  must  be  estimated  for  all  undeveloped  proven 
land  as  well  as  producing  land.  If  information  subsequently  obtained 
clearly  shows  the  estimate  to  have  been  materially  erroneous,  it  may  be 
revised  with  the  approval  of  the  Commissioner.  (Art.  209.) 

Computation  of  allowance  for  depletion  of  mines  and  oil  wells. — 
When  the  cost  or  value  as  of  March  1,  1913,  or  within  30  days  after 
the  date  of  discovery  of  the  property  shall  have  been  determined,  and  the 
number  of  mineral  units  in  the  property  as  of  the  date  of  acquisition  or 
valuation  shall  have  been  estimated,  the  division  of  the  former  amount 
by  the  latter  figure  will  give  the  unit  value  for  purposes  of  depletion,  and 
the  depletion  allowance  for  the  taxable  year  may  be  computed  by  multi- 
plying such  unit  value  by  the  number  of  units  of  mineral  extracted  dur- 
ing the  year.  If,  however,  proper  additions  are  made  to  the  capital 
account  represented  by  the  original  cost  or  value  of  the  property,  or 
unforeseen  circumstances  necessitate  a  revised  estimate  of  the  number 


294  TAX   ON   PERSONAL  INCOMES  §  360 

of  mineral  units  in  the  ground,  a  new  unit  value  for  purposes  of  deple- 
tion may  be  found  by  dividing  the  capital  account  at  the  end  of  the 
year,  less  deductions  for  depletion  to  the  beginning  of  the  taxable  year 
which  have  or  should  have  been  taken,  by  the  number  of  units  in  the 
ground  at  the  beginning  of  the  taxable  year.  This  number,  unless  a  re- 
vision of  the  original  estimate  has  been  necessary,  will  equal  the  num- 
ber of  units  in  the  ground  at  the  date  of  original  acquisition  or  valuation 
less  the  number  extracted  prior  to  the  taxable  year.  If,  however,  a  re- 
calculation is  needed,  the  number  of  units  at  the  beginning  of  the  year 
will  be  the  sum  of  the  gross  production  of  the  year  and  the  estimated 
mineral  reserves  in  the  property  at  the  end  of  the  year.  (Art.  210.) 

Computation  of  allowance  for  depletion  of  gas  wells. — On  account 
of  the  peculiar  conditions  surrounding  the  production  of  natural  gas  it 
will  be  necessary  to  compute  the  depletion  allowances  for  gas  properties 
by  methods  "suitable  to  the  particular  cases  in  question  and  acceptable 
to  the  Commissioner.  Usually,  the  depletion  of  natural  gas  properties 
should  be  computed  on  the  basis  of  decline  in  closed  or  rock  pressure, 
taking  into  account  the  effects  of  water  encroachment  and  any  other 
modifying  factors.  The  gas  producer  will  be  expected  to  compute  the 
depletion  as  accurately  as  possible  and  submit  with  his  return  a  descrip- 
tion of  the  method  by  which  the  computation  was  made.  The  following 
formula,  in  which  the  units  of  gas  are  pounds  per  square  inch  of  closed 
pressure,  may  be  used  and  is  recommended:  the  quotient  of  the  capital 
account  recoverable  through  depletion  allowances  to  the  end  of  the  tax- 
able year,  divided  by  the  sum  of  the  pressures  at  the  beginning  of  the 
year  less  the  sum  of  the  pressures  at  the  time  of  expected  abandon- 
ment (which  quotient  is  the  unit  cost),  multiplied  by  the  sum  of  the 
pressures  at  the  beginning  of  the  taxable  year  plus  the  sum  of  the  pressures 
of  new  wells  less  the  sum  of  the  pressures  at  the  end  of  the  tax  year, 
equals  the  depletion  allowance.  (Art.  211.) 

Gas  well  pressure  records  to  be  kept. — Beginning  with  1919  closed 
pressure  readings  of  representative  wells,  if  not  of  all  wells,  must  be 
carefully  made  and  kept.  In  order  to  standardize  pressure  readings  the 
well  should  remain  closed  until  the  pressure  does  not  build  up  more  than 
1  per  cent  of  the  total  pressure  in  ten  minutes.  Ordinarily  24  hours 
will  suffice  for  this  purpose,  but  some  wells  will  need  to  remain  closed 
for  a  longer  period.  If  there  is  any  water  in  the  well  it  should  be  blown 
or  pumped  off  before  the  well  is  closed.  A  closed  pressure  reading  of  a 
gas  well  which  has  been  producing,  or  is  near  gas  wells  that  have  been 
producing,  is  lower  than  the  actual  pressure  of  the  gas  in  the  reservoir  by 
an  amount  depending  on  the  well's  location  with  reference  to  other 
producing  wells  and  the  length  of  time  it  has  been  closed  in.  It  is  neces- 
sary to  record  the  length  of  time  the  well  has  been  closed  and  to  show 
how  the  pressure  built  up  during  this  period.  Successive  readings  will 
indicate  the  point  at  which  the  pressure  becomes  approximately  station- 
ary, that  is,  the  point  at  which  the  closed  pressure  approaches  as  nearly 
as  possible  the  maximum  pressure  which  would  be  shown  if  all  wells  in 


§  360  N.  Y.  ACT  AND  TJ.  S.  REGULATIONS  295 

the  pool  were  closed  for  several  months.  The  length  of  time  required 
varies  with  the  character  of  the  sand,  position  of  the  packer,  the  loca- 
tion of  the  well  with  reference  to  other  wells,  the  limits  of  the  pool, 
and  other  factors.  The  depth  of  the  well,  diameter  of  tubing,  and  line 
pressure  when  the  well  was  shut  off,  should  be  noted.  Since  readings 
at  the  exact  end  of  the  taxable  year  will  ordinarily  not  be  available,  the 
pressure  of  that  date  may  be  obtained  by  interpolation  or  extrapolation. 
In  certain  cases  readings  taken  regularly  in  September  or  some  other 
month  may  be  applicable  to  the  end  of  the  taxable  year.  As  a  general 
rule  September  closed  pressure  readings  furnish  the  best  indication  of 
depletion  and  it  is  recommended  that  such  readings  be  made  with  regu- 
larity and  care.  Where  interpolated  or  extrapolated  readings  are  used 
the  data  from  which  they  are  obtained  should  be  given.  Gauges  should 
be  of  appropriate  capacity  and  should  be  frequently  tested.  A  record 
should  be  kept  of  the  number  of  gauges,  date  each  was  tested,  names  of 
men  testing,  and  other  significant  details.  (Art.  212.) 

Computation  of  allowance  where  quantity  of  oil  or  gas  uncertain. — 
If  by  reason  of  the  youth  of  the  field,  the  restricted  production,  or  for 
any  other  cause,  it  is  not  possible  to  determine  with  any  degree  of  cer- 
tainty the  quantity  of  oil  or  gas  in  a  property,  it  will  be  necessary  to 
make  a  tentative  estimate  which  will  apply  until  production  figures  are 
available  from  which  an  accurate  determination  may  be  made.  (Art.  213.) 

Computation  of  depletion  allowance  for  combined  holdings  of  oil 
and  gas  wells. —  ( 1 )  The  recoverable  oil  belonging  to  the  taxpayer  shall 
be  estimated  separately  on  the  smallest  unit  on  which  data  are  available, 
such  as  individual  wells  or  tracts,  and  these  added  together  into  a  grand 
total  to  be  applied  to  the  total  capital  account  returnable  through  deple- 
tion. The  capital  account  shall  include  the  cost  or  value,  as  the  case  may 
be,  of  all  oil  or  gas  leases  or  rights  within  the  United  States  and  its 
possessions,  plus  all  incidental  costs  of  development  not  charged  as  ex- 
pense nor  returnable  through  depreciation.  The  unit  value  of  the  total 
recoverable  oil  or  gas  is  the  quotient  obtained  by  dividing  the  total  capital 
account  recoverable  through  depletion  by  the  total  estimated  recoverable 
oil  or  gas.  This  unit  multiplied  by  the  total  number  of  units  of  oil  or  gas 
produced  by  the  taxpayer  during  the  taxable  year  from  all  of  the  oil 
and  gas  properties  will  determine  the  amount  which  may  be  allowably 
deducted  from  the  gross  income  of  that  year. 

(2)  In  the  case  of  the  gas  properties  of  a  taxpayer  the  depletion  allow- 
ance for  each  pool  may  be  computed  by  using  the  combined  capital  ac- 
count returnable  through  depletion  of  all  the  tracts  of  gas  land  owned 
by  the  taxpayer  in  the  pool  and  the  average  decline  in  rock  pressures  of 
all  tne  taxpayer's  wells  in  such  pool  in  the  formula  given  in  article  211. 
The  total  allowance  for  depletion  of  the  gas  properties  of  the  taxpayer  will 
be  the  sum  of  the  amounts  computed  for  each  pool.  (Art.  214.) 

Depletion  of  mine  based  on  advanced  royalties. — Where  the  owner 
has  leased  a  mining  property  for  a  term  of  years  with  a  requirement 
in  the  lease  that  the  lessee  shall  mine  and  pay  for  annually  a  specified 


296  TAX  ON  PERSONAL  INCOMES  §  360 

number  of  tons  or  other  agreed  units  of  measurement  of  such  mineral,  or 
shall  pay  annually  a  specified  sum  of  money  which  shall  he  applied  in 
payment  of  the  purchase  price  or  agreed  royalty  per  unit  of  such  mineral 
whenever  the  same  shall  thereafter  be  mined  and  removed  from  the 
leased  premises,  the  value  in  the  ground  to  the  lessor  for  purposes  of  deple- 
tion of  the  number  of  units  so  paid  for  in  advance  of  mining  will  con- 
stitute an  allowable  deduction  from  the  gross  income  of  the  year  in  which 
such  payment  or  payments  shall  be  made;  but  no  deduction  for  deple- 
tion by  the  lessor  shall  be  claimed  or  allowed  in  any  subsequent  year  on 
account  of  the  mining  or  removal  in  such  year  of  any  ore  or  mineral  so 
paid  for  in  advance  and  for  which  deduction  has  been  once  made.  If 
for  any  reason  any  such  mining  lease  shall  be  terminated  before  the  ore 
or  mineral  therein  which  has  been  paid  for  in  advance  has  been  mined 
and  removed,  and  the  lessor  repossesses  the  leased  property,  an  amount 
equal  to  the  aggregate  deductions  for  depletion  allowed  in  respect  of  ore 
or  mineral  not  mined  and  removed  by  the  lessee,  but  still  in  the  ground, 
will  be  deemed  income  to  the  lessor  and  will  be  returned  as  such  for  the 
year  in  which  the  property  is  repossessed.  (Art.  215.) 

Depletion  and  depreciation  accounts  on  books. — Every  taxpayer 
claiming  and  making  a  deduction  for  depletion  and  depreciation  of  min- 
eral property  shall  keep  accurate  ledger  accounts  in  which  shall  be 
charged  the  fair  market  value  as  of  March  1,  1913,  or  within  30  days 
after  the  date  of  discovery,  or  the  cost,  as  the  case  may  be,  (a)  of  the 
property,  and  (&)  of  the  plant  and  equipment,  together  with  such  amounts 
expended  for  development  of  the  property  or  additions  to  plant  and  equip- 
ment since  that  date  as  have  not  been  deducted  as  expense  in  his  re- 
turns. These  accounts  shall  be  credited  with  the  amount  of  the  de- 
preciation and  depletion  deductions  claimed  and  allowed  each  year,  or 
the  amount  of  the  depreciation  and  depletion  shall  be  credited  to  deple- 
tion and  depreciation  reserve  accounts,  to  the  end  that  when  the  sum 
of  the  credits  for  depletion  and  depreciation  equals  the  value  or  cost  of 
the  property,  plus  the  amount  added  thereto  for  development  or  addi- 
tional plant  and  equipment,  less  salvage  value  of  the  physical  property, 
no  further  deduction  for  depletion  and  depreciation  with  respect  to  the 
property  will  be  allowed.  If  dividends  are  paid  out  of  a  depletion  or 
depreciation  reserve,  the  stockholders  must  be  expressly  notified  that  the 
dividend  is  a  return  of  capital  and  not  an  ordinary  dividend  out  of 
profits.  (Art.  216.) 

Statement  to  be  attached  to  return  where  depletion  of  mine  claimed. 
— To  the  return  of  the  taxpayer  claiming  a  deduction  for  depletion  or  de- 
preciation or  both  there  should  be  attached  a  statement  setting  out:  (a) 
whether  the  owner  is  a  fee  owner  or  lessee  or  both;  (6)  a  description  of 
the  property  owned  in  fee,  if  any,  and  a  description  of  the  leasehold 
property,  if  any,  including  the  date  of  acquisition  and  the  date  of  ex- 
piration of  the  lease;  (c)  the  fair  market  value  as  of  March  1,  1913,  or 
within  30  days  of  the  date  of  discovery,  or  the  cost,  as  the  case  may  be, 
of  the  property  owned  in  fee  and  the  leasehold  property,  together  with  a 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  297 

statement  of  the  precise  method  by  which  the  value  or  the  cost  of  free- 
hold and  leasehold  property  was  determined;  (d)  the  estimated  number 
of  units  of  mineral  or  ore  at  the  date  of  acquisition  or  of  valuation  in 
the  property  owned  in  fee  and  in  the  leasehold  property  separately,  to- 
gether with  an  explanation  of  the  method  used  in  estimating  in  each 
case  the  number  of  units  of  mineral  or  ore  for  purposes  of  depletion; 
(e)  the  amount  of  capital  applicable  to  each  unit;  (f)  the  number  of 
units  removed  and  sold  during  the  year  for  which  the  return  was  made; 
(g)  the  total  amount  deducted  on  account  of  depletion  and  on  account 
of  depreciation,  stated  separately,  up  to  the  taxable  year  during  the 
ownership  of  the  taxpayer;  and  (h)  any  other  data  which  would  be  help- 
ful in  determining  the  reasonableness  of  the  depletion  and  depreciation 
deductions  claimed  in  the  return.  (Art.  217.) 

Statement  to  be  attached  to  return  where  depletion  of  oil  or  gas 
claimed. — To  each  return  made  by  a  person  owning  or  operating  oil  or 
gas  properties,  there  should  be  attached  a  statement  showing  for  each 
property  the  following  information,  which  may  be  given  in  the  form  of  a 
table,  if  desired,  by  taxpayers  owning  more  than  one  property:  (a-)  the 
fair  market  value  of  the  property  (exclusive  of  machinery,  equipment, 
etc.,  and  the  value  of  the  surface  rights)  as  of  March  1,  1913,  if  ac- 
quired prior  to  that  date;  or  the  fair  market  value  of  the  property  within 
30  days  after  the  date  of  discovery;  or  the  actual  cost  of  the  property,  if 
acquired  subsequently  to  February  28,  1913,  and  not  covered  by  the  fore- 
going clause;  (6)  how  the  fair  market  value  was  ascertained,  if  the 
property  came  under  the  first  or  second  head  under  (a)  ;  (c)  the  esti- 
mated quantity  of  oil  or  gas  in  the  property  at  the  time  that  the  value 
or  cost  was  determined;  (d)  the  name  and  address  of  the  person  making 
the  estimate  and  the  manner  in  which  this  estimate  was  made,  including 
a  summary  of  the  calculations;  (e)  the  amount  of  capital  applicable  to 
each  unit  (this  being  found  by  dividing  the  value  or  cost,  as  the  case 
may  be,  by  the  estimated  number  of  units  of  oil  or  gas  in  the  property  at 
the  time  the  value  or  cost  was  determined)  ;  (/)  the  quantity  of  oil  or 
gas  produced  during  the  year  for  which  the  return  is  made  (in  the  case 
of  new  properties  it  is  desirable  that  this  information  be  furnished  by 
months)  ;  (g)  the  number  of  acres  of  producing  and  proven  oil  or  gas 
land;  (h)  the  number  of  wells  producing  at  the  beginning  and  end  of 
the  taxable  year;  (i)  the  date  of  completion  of  wells  finished  during  the 
taxable  year;  (;')  the  date  of  abandonment  of  all  wells  abandoned  dur- 
ing the  taxable  year;  (k)  a  property  map  showing  the  location  of  the 
property  and  of  the  producing  and  abandoned  wells,  dry  holes,  and  proven 
oil  and  gas  land;  (I)  the  average  gravity  of  the  oil  produced  on  the 
tract;  (m)  the  number  of  pay  sands  and  average  thickness  of  each  pay 
sand  or  zone  on  the  prope'rty;  (n)  the  average  depth  to  the  top  of  each 
of  the  different  pay  sands;  (o)  any  data  regarding  change  in  operating 
conditions,  such  as  flooding,  use  of  compressed  air,  vacuum,  shooting,  etc., 
which  have  a  direct  effect  on  the  production  of  the  property;  (p)  the 
monthly  or  annual  production  of  individual  wells  and  the  initial  daily 


298  TAX  ON-  PERSONAL   INCOMES  §  360 

production  of  new  wells  (this  is  highly  desirable  information  and  should  be 
furnished  wherever  possible)  ;  (q)  (for  the  first  year  in  which  the  above 
information  is  filed  for  a  property  which  was  producing  prior  to  the 
taxable  year  covered  by  the  above  statement  the  following  information 
must  be  furnished)  annual  production  of  the  tract  or  of  the  individual 
wells,  if  the  latter  information  is  available,  from  the  beginning  of  its 
productivity  to  the  beginning  of  the  taxable  year  for  which  the  return 
was  filed;  the  average  number  of  wells  producing  during  each  year; 
and  the  initial  daily  production  of  each  well;  and  (r)  any  other  data 
which  will  be  helpful  in  determining  the  reasonableness  of  the  depletion 
deduction.  When  a  taxpayer  has  filed  adequate  maps  with  the  Commis- 
sioner he  may  be  relieved  of  filing  further  maps  of  the  same  properties, 
provided  all  additional  information  necessary  for  keeping  the  maps  up  to 
date  is  filed  each  year.  This  includes  records  of  dry  holes,  as  well  as  pro- 
ducing wells,  together  with  logs,  depth  and  thickness  of  sands,  location 
of  new  wells,  etc.  By  "production"  is  meant  the  net  production  of  oil 
or  gas  belonging  to  the  taxpayer.  In  those  leases  where  no  account  is 
kept  of  the  oil  or  gas  used  for  fuel,  the  production  will  necessarily  be 
that  remaining  after  the  fuel  used  in  the  property  has  been  taken  out. 
In  cases  of  this  kind  an  estimate  of  the  fuel  used  from  each  tract  should 
be  given  for  each  year.  (Art.  218.) 

Discovery  of  mine. — The  discovery  of  a  mine  or  a  natural  deposit  of 
mineral,  whether  it  be  made  by  an  owner  of  the  land  or  by  a  lessee,  shall 
be  deemed  to  mean  (a)  the  bona  fide  discovery  of  a  commercially  valu- 
able deposit  of  ore  or  mineral  of  a  value  materially  in  excess  of  the  cost 
of  discovery  in  natural  exposure  or  by  drilling  or  other  exploration  con- 
ducted above  or  below  ground,  or  (6)  the  development  and  proving  of 
a  mineral  or  ore  deposit  which  has  been  abandoned  or  apparently  worked 
out,  or  sold,  leased  or  otherwise  disposed  of,  by  an  owner  or  lessee  prior 
to  the  development  of  a  body  of  ore  or  mineral  of  sufficient  size,  quality 
and  character  to  determine  it,  in  connection  with  the  physical  and  geo- 
logical conditions  of  its  occurrence,  to  be  a  mineable  deposit  of  ore  or 
mineral  having  a  value  materially  in  excess  of  the  cost  of  the  proving  and 
development.  In  determining  whether  a  discovery  has  been  made  the 
Commissioner  will  take  into  account  the  peculiar  conditions  of  the  case, 
and  every  taxpayer  claiming  the  value  of  a  mineral  deposit  on  the  date 
of  discovery  or  within  30  days  thereafter  for  purposes  of  depletion  will 
be  required  to  attach  to  his  return  a  statement  setting  forth  the  con- 
ditions and  circumstances  of  the  discovery  and  the  size,  character  and  lo- 
cation of  the  deposit,  together  with  the  cost  of  discovery,  its  value  and 
the  precise  method  used  in  determining  the  value.  (Art.  219.) 

Discovery  of  oil  and  gas  wells. — In  order  to  take  advantage  of  his 
discovery  on  or  after  March  1,  1913,  of  oil  or  gas  wells,  the  taxpayer  must 
show  (a)  that  the  tract  for  which  such  valuation  is  claimed  was  not 
proven  oil  land  as  to  the  particular  sand  or  zone  discovery  of  which  is 
claimed  at  the  time  the  so-called  discovery  was  made,  proven  oil  land 
being  that  which  has  been  shown  by  finished  wells,  supplemented  by 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  299 

geologic  data,  to  be  such  that  other  wells  drilled  thereon  are  practically 
certain  to  be  commercial  producers;  (6)  that  the  discovery  was  a  bona 
fide  discovery  of  a  commercial  well  of  oil  or  gas  or  both  of  these  sub- 
stances on  the  property  in  question,  a  commercial  well  being  one  whose 
production  is  such  as  to  offer  a  reasonable  expectation  of  at  least  re- 
turning the  capital  invested  in  such  well  through  the  sale  of  the  oil  or 
gas  or  both  derived  therefrom  during  its  economic  life;  and  (c)  that  the 
fair  market  value  of  the  property  was  materially  in  excess  of  the  cost. 
(Art.  220.) 

Proof  of  discovery  of  oil  and  gas  wells. — In  order  to  meet  the  require- 
ments of  the  preceding  article  to  the  satisfaction  of  the  Commissioner 
the  taxpayer  will  be  required,  among  other  things,  to  submit  the  fol- 
lowing with  his  return:  (a)  a  map  of  convenient  scale,  showing  the  lo- 
cation of  the  tract  and  discovery  well  in  question  and  of  the  nearest 
producing  well,  and  the  development  for  a  radius  of  at  least  three  miles 
from  the  tract  in  question,  both  on  the  date  of  discovery  and  on  the  date 
when  the  fair  market  value  was  set;  (6)  a  certified  copy  of  the  log  of 
the  discovery  well,  showing  the  location,  the  date  drilling  began,  the  date 
of  completion  and  beginning  of  production,  the  formations  penetrated,  the 
oil,  gas  and  water  sands  penetrated,  the  casing  record,  including  the  rec- 
ord of  perforations,  and  any  other  information  tending  to  show  the 
condition  of  the  well  and  the  location  of  the  sand  or  zone  from  which 
the  oil  or  gas  is  produced  on  the  date  the  discovery  was  claimed;  (c) 
the  logs  of  enough  other  wells  drilled  prior  to  the  date  of  completion 
of  the  discovery  in  the  vicinity  of  the  discovery  well  to  convince  the  Com- 
missioner that  the  sand  or  zone  discovery  of  which  is  claimed  was  not 
known  prior  to  the  so-called  discovery;  (d)  a  sworn  record  of  produc- 
tion, clearly  proving  the  commercial  productivity  of  the  discovery  well; 
(e)  a  sworn  copy  of  the  records,  showing  the  cost  of  the  property;  and 
(/)  a  full  explanation  of  the  method  of  determining  the  value  on  the 
date  of  discovery  or  within  30  days  thereafter,  supported  by  satisfactory 
evidence  of  the  fairness  of  this  value.  (Art.  221.) 

Charges  to  capital  and  to  expense  in  the  case  of  mine. — In  the  case 
of  mining  operations  all  expenditures  for  plant,  equipment,  development, 
rent  and  royalty  prior  to  production,  and  thereafter  all  major  items  of 
plant  and  equipment,  shall  be  charged  to  capital  account  for  purposes  of 
depletion  and  depreciation.  After  a  mine  has  been  developed  and  equipped 
to  its  normal  and  regular  output  capacity,  however,  the  cost  of  additional 
minor  items  of  equipment  and  plant,  including  mules,  motors,  mine  cars, 
trackage,  cables,  trolley  wire,  fans,  small  tools,  etc.,  necessary  to  maintain 
the  normal  output  because  of  increased  length  of  haul  or  depth  of  working 
consequent  on  the  extraction  of  mineral,  and  the  cost  of  replacements  of 
these  and  similar  minor  items  of  worn-out  and  discarded  plant  and  equip- 
ment, may  be  charged  to  current  expense  of  operations,  unless  the  taxpayer 
elects  to  write  off  such  expenditures  through  charges  for  depreciation. 
(Art.  222.) 


300  TAX   ON   PERSONAL   INCOMES  §  360 

Charges  to  capital  and  to  expense  in  the  case  of  oil  and  gas  wells. — 

Such  incidental  expenses  as  are  paid  for  wages,  fuel,  repairs,  hauling,  etc., 
in  connection  with  the  exploration  of  the  property,  drilling  of  wells,  build- 
ing of  pipe  lines,  and  development  of  the  property  may  at  the  option  of 
the  taxpayer  be  deducted  as  an  operating  expense  or  charged  to  the  capital 
account  returnable  through  depletion.  If  in  exercising  this  option  the 
taxpayer  charges  these  incidental  expenses  to  capital  account,  in  so  far 
as  such  expense  is  represented  by  physical  property  it  may  be  taken  into 
account  in  determining  a  reasonable  allowance  for  depreciation.  The  cost 
of  drilling  non-productive  wells  may  at  the  option  of  the  operator  be  de- 
ducted from  gross  income  as  an  operating  expense  or  charged  to  capital 
account  returnable  through  depletion  and  depreciation  as  in  the  case  of 
productive  wells.  An  election  once  made  under  this  option  will  control 
the  taxpayer's  returns  for  all  subsequent  years.  Casing-head  gas  contracts 
have  been  construed  to  be  tangible  assets  and  their  cost  may  be  added  to 
the  capital  account  returnable  through  depletion,  following  the  rate  set 
by  the  oil  wells  from  which  the  gas  is  derived,  or,  if  the  life  of  the  con- 
tract is  shorter  than  the  reasonable  expectation  of  the  life  of  the  wells 
furnishing  the  gas,  the  capital  invested  in  the  contract  may  be  written 
off  through  yearly  allowances  equitably  distributed  over  the  life  of  the 
contract.  All  oil  produced  during  the  taxable  year,  whether  sold  or  unsold, 
must  be  considered  in  the  computation  of  the  depletion  allowance  for  that 
year.  In  computing  net  income  all  oil  in  storage  at  the  beginning  and  at 
the  end  of  the  taxable  year  must  be  inventoried  at  cost,  that  is,  unit  cost 
plus  lifting  cost.  Where  deductions  for  depreciation  or  depletion  have 
either  on  the  books  of  the  taxpayer  or  in  his  returns  of  net  income  been 
included  in  the  past  in  expense  or  other  accounts,  rather  than  specifically 
as  depreciation  or  depletion,  or  where  capital  expenditures  have  been 
charged  to  expense  in  lieu  of  depreciation  or  depletion,  a  statement  indi- 
cating the  extent  to  which  this  practice  has  been  carried  should  accompany 
the  return.  (Art.  223.) 

Depreciation  of  improvements  in  the  case  of  mine. — It  shall  be  op- 
tional with  the  taxpayer,  subject  to  the  approval  of  the  Commissioner,  (a) 
whether  the  cost  or  value  of  the  mining  property,  including  ores  and  min- 
erals, plant  and  equipment,  and  charges  and  additions  to  capital  account 
not  charged  to  expense  and  deducted  as  expense  on  the  returns  of  the  tax- 
payer, shall  be  recovered  at  a  rate  established  by  current  exhaustion  of 
mineral,  or  (&)  whether  the  cost  or  value  of  the  mineral  and  charges  to 
capital  account  of  expenditures  other  than  for  physical  property  shall  be 
recovered  by  appropriate  charges  based  on  depletion  and  the  cost  or  value 
of  plant  and  equipment  shall  be  recovered  by  reasonable  charges  for  depre- 
ciation calculated  by  the  usual  rules  for  depreciation  or  according  to  the 
peculiar  conditions  of  the  taxpayer's  case  by  a  method  satisfactory  to  the 
Commissioner.  Nothing  in  these  regulations  shall  be  interpreted  to  mean 
that  the  value  of  a  mining  plant  and  equipment  may  be  reduced  by  depre- 
ciation or  depletion  deductions  to  a  sum  below  the  value  of  the  salvage 
when  the  property  shall  have  become  obsolete  or  shall  have  been  abandoned 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  301 

for  the  purpose  of  mining,  or  that  any  part  of  the  value  of  land  for  pur- 
poses other  than  mining  may  be  recoverable  through  depletion  or  depre- 
ciation. (Art.  224.) 

Depreciation  of  improvements  in  the  case  of  oil  and  gas  wells. — 
Both  owners  and  lessees  operating  oil  or  gas  properties  will,  in  addition 
to  and  apart  from  the  deduction  allowable  for  the  depletion  or  return  of 
capital  as  hereinbefore  provided,  be  permitted  to  deduct  a  reasonable  allow- 
ance for  depreciation  of  physical  property,  such  as  machinery,  tools,  equip- 
ment, pipes,  etc.,  so  far  as  not  in  conflict  with  the  option  exercised  by  the 
taxpayer  under  article  223.  The  amount  deductible  on  this  account  shall 
be  such  an  amount  based  upon  its  cost  or  fair  market  value  as  of  March  1, 
1913,  equitably  distributed  over  its  useful  life  as  will  bring  such  property 
to  its  true  salvage  value  when  no  longer  useful  for  the  purpose  for  which 
such  property  was  acquired.  Accordingly,  where  it  can  be  shown  to  the 
satisfaction  of  the  Commissioner  that  the  reasonable  expectation  of  the 
economic  life  of  the  oil  or  gas  deposit  with  which  the  property  is  con- 
nected is  shorter  than  the  normal  useful  life  of  the  physical  property,  the 
amount  annually  deductible  for  depreciation  may  for  such  property  be 
based  upon  the  length  of  life  of  the  deposit.  (Art.  225.) 

Depletion  and  depreciation  of  oil  and  gas  wells  in  years  before  1916. 
— If  upon  examination  it  is  found  that  in  respect  of  the  entire  drilling 
cost  of  wells,  including  physical  property  and  incidental  expenses,  between 
March  1,  19T3,  and  December  31,  1915,  a  taxpayer  has  been  allowed  a 
reasonable  deduction  sufficient  to  provide  for  the  elements  of  exhaustion, 
wear  and  tear,  and  depletion,  it  will  not  be  necessary  to  reopen  the  returns 
for  years  prior  to  1916  in  order  to  show  separately  in  these  years  the 
portions  of  such  deduction  representing  depletion  and  depreciation,  re- 
spectively. Such  separation  will  be  required  to  be  made  of  the  reserves 
for  depreciation  at  January  1,  1916,  and  proper  allocation  between  depre- 
ciation and  depletion  must  be  maintained  after  that  date.  In  any  case 
in  which  it  is  found  that  the  deductions  taken  between  March  1,  1913, 
and  December  31,  1915,  are  not  reasonable,  amended  returns  may  be  re- 
quired for  these  years.  (Art.  226.) 

Depletion  of  timber. — A  reasonable  deduction  from  gross  income  for 
the  depletion  of  timber  and  for  the  depreciation  of  improvements  is  per- 
mitted, based  (a)  upon  cost  if  acquired  after  February  28,  1913,  or  (6) 
upon  the  fair  market  value  as  of  March  1,  1913,  if  acquired  prior  thereto. 
The  essence  of  this  provision  is  that  the  owner  of  timber  property,  whether 
it  be  a  leasehold  or  a  freehold,  shall  secure  through  an  aggregate  of  annual 
depletion  and  depreciation  deductions  a  return  of  the  amount  of  capital 
invested  by  him  in  the  property,  or  in  lieu  thereof  an  amount  equal  to  its 
fair  market  value  as  of  March  1,  1913,  plus  in  any  case  the  subsequent 
cost  of  plant,  equipment  and  development  which  is  not  chargeable  to  cur- 
rent operating  expenses,  but  not  including  cut-over  land  values.  (Art.  227.) 

Capital  recoverable  through  depletion  allowance  in  the  case  of 
timber. — In  general,  the  capital  remaining  in  any  year  recoverable  through 
depletion  allowances  may  be  determined  as  indicated  in  articles  202  and 


302  TAX   ON   PERSONAL  INCOMES  §  360 

203.  In  the  case  of  leases  the  apportionment  of  deductions  between  the 
lessor  and  lessee  should  be  made  as  specified  in  article  204.  Where  it 
becomes  necessary  to  determine  the  cost  or  fair  market  value  as  of  March 
1,  1913,  of  the  property,  the  rules  laid  down  in  articles  205  and  206  should 
be  followed  so  far  as  possible.  (Art.  228.) 

Computation  of  allowance  for  depletion  of  timber. — An  allowance  for 
the  depletion  of  timber  in  any  taxable  year  shall  be  based  upon  the  num- 
ber of  feet  of  stumpage  cut  during  the  year  and  the  unit  cost  of  the  stump- 
age  at  the  date  of  acquisition  or  the  unit  market  value  on  March  1,  1913, 
if  acquired  prior  thereto.  The  unit  market  value  as  of  March  1,  1913, 
shall  be  the  unit  price  at  which  the  standing  timber  in  its  then  condition 
and  in  view  of  its  then  environment  could  have  been  sold  for  cash  or  its 
equivalent.  The  amount  of  the  deduction  for  depletion  in  any  taxable 
year  shall  be  the  product  of  the  number  of  feet  of  stumpage  cut  during 
the  year  multiplied  by  such  unit  cost  or  market  value  of  the  stumpage. 
(Art.  229). 

Revaluation  of  stumpage  not  allowed. — The  fair  market  value  of 
stumpage  when  determined  as  of  March  1,  1913,  for  the  purpose  of  deple- 
tion allowances  in  the  case  of  timber  acquired  prior  thereto,  shall  be  the 
basis  for  determining  the  depletion  deduction  for  each  year  during  the 
continuance  of  the  ownership  under  which  the  fair  market  value  of  the 
stumpage  was  fixed,  and  during  such  ownership  there  can  be  no  redeter- 
mination  of  the  fair  market  value  of  the  stumpage  for  such  purpose.  How- 
ever, the  unit  market  value  of  stumpage  adopted  by  the  taxpayer  may 
subsequently  be  changed  if  from  any  cause  such  value,  if  continued  as  a 
basis  of  depletion,  should  upon  evidence  satisfactory  to  the  Commissioner 
be  found  inadequate  or  excessive  for  the  extinguishment  of  the  fair  mar- 
ket value  of  the  timber  as  of  March  1,  1913.  (Art.  230.) 

Charges  to  capital  and  to  expense  in  the  case  of  timber. — In  the  case 
of  timber  operations  all  expenditures  for  plant,  equipment,  development, 
rent  and  royalty  prior  to  production,  and  thereafter  all  major  items  of 
plant  and  equipment,  shall  be  charged  to  capital  account  for  purposes  of 
depreciation.  After  a  timber  operation  and  plant  has  been  developed  and 
equipped  to  its  normal  and  regular  output  capacity,  the  cost  of  additional 
minor  items  of  equipment  and  the  cost  of  replacement  of  minor  items  of 
worn-out  and  discarded  plant  and  equipment  may  be  charged  to  current 
expenses  of  operations.  (Art.  231.) 

Depreciation  of  improvements  in  the  case  of  timber. — The  cost  or 
value  as  of  March  1,  1913,  as  the  case  may  be,  of  development  not  repre- 
sented by  physical  property  having  an  inventory  value,  and  such  cost  or 
value  of  all  physical  property  which  has  not  been  deducted  and  allowed 
as  expense  in  the  returns  of  the  taxpayer,  shall  be  recoverable  through 
depreciation.  It  shall  be  optional  with  the  taxpayer,  subject  to  the  ap- 
proval of  the  Commissioner,  (a)  whether  the  cost  or  value,  as  the  case 
may  be,  of  the  property  subject  to  depreciation  shall  be  recovered  at  a 
rate  established  by  current  exhaustion  of  stumpage,  or  (&)  whether  the 
cost  or  value  shall  be  recovered  by  appropriate  charges  for  depreciation 


§  360  X.  Y.  ACT  AXD  U.  S.  REGULAT.  303 

calculated  by  the  usual  rules  for  depreciation  or  according  to  the  peculiar 
conditions  of  the  taxpayer's  case  by  a  method  satisfactory  to  the  Com- 
missioner. In  no  case  may  charges  for  depreciation  be  based  on  a  rate 
which  will  extinguish  the  cost  or  value  of  the  property  prior  to  the  ter- 
mination of  its  useful  life.  Nothing  in  these  regulations  shall  be  inter- 
preted to  mean  that  the  value  of  a  timber  plant  and  equipment,  so  far  as 
it  is  represented  by  physical  property  having  an  inventory  value,  may  be 
reduced  by  depreciation  deductions  to  a  sum  below  the  value  of  the  salvage 
when  the  plant  and  equipment  shall  have  become  obsolete  or  worn  out  or 
shall  have  been  abandoned,  or  that  any  part  of  the  value  of  cut-over  land 
may  be  recoverable  through  depreciation.  (Art.  232.) 

Statement    to    be   attached    to    return   where    depletion   of   timber 
claimed. — To  the  return  c:  aver  claiming  a  deduction  for  deple- 

tion or  depreciation  or  both  there  should  be  attached  a  statement  setting 
out  (a)  whether  the  owner  is  an  owner  in  fee  or  a  lessee  or  both;  (6)  a 
description  of  the  property  owned  in  fee,  if  any,  and  a  description  of  the 
.hold  property,  if  any,  including  the  date  of  acquisition  and  the  date 
of  expiration  of  the  lease:  (c)  the  cost  of  the  freehold  and  the  leasehold 
property;  (d)  the  number  of  feet  of  timber  removed  and  sold  during  the 
year  for  which  the  return  was  made;  (r)  the  total  amount  deducted  on 
ant  of  depletion  and  on  account  of  depreciation,  stated  separately,  up 
to  the  taxable  year  during  the  ownership  of  the  taxpayer;  and  (/)  any 
other  data  which  would  be  helpful  in  determining  the  reasonableness  of 
the  depletion  and  depreciation  deductions  claimed  in  the  return.  The 
taxpayer  shall  keep  accurate  ledger  accounts  as  outlined  in  article  216, 
and  in  general  should  comply  with  the  requirements  of  the  foregoing  ar- 
ticles relating  to  the  depletion  of  mines  and  oil  and  gas  wells  so  far  as 
applicable.  (Art.  233.) 

Deductions  allowable:  charitable  contributions. 

10.  Contributions  or  gifts  made  within  the  taxable  year  to  cor- 
porations incorporated  by,  or  associations  organized  under,  the  laws 
of  thi$  state  and  operated  exclusively  for  religious,  charitable,  scien- 
tific or  educational  purposes,  or  for  the  prevention  of  cruelty  to 
children  or  animals,  no  part  of  the  net  earnings  of  which  inures  to 
the  benefit  of  any  private  stockholder  or  individual,  or  to  the  special 
fund  for  vocational  rehabilitation  authorized  by  section  seven  of  the 
of  Congress  known  as  the  vocational  rehabilitation  act,  to  an 
amount  not  in  excess  of  fifteen  per  centum  of  the  taxpayer's  net 
income  as  computed  without  the  benefit  of  this  subdivision.  Such 
contributions  or  gifts  shall  be  allowable  as  deductions  only  if  ver- 
ified under  rules  and  regulations  prescribed  by  the  comptroller.  In 
the  case  of  a  taxpayer  other  than  a  resident  of  the  state  this  deduc- 


304  TAX   ON   PERSONAL   INCOMES  §  360 

tion  shall  be  allowed  only  as  to  contributions  or  gifts  made  to  cor- 
porations or  associations  incorporated  by  or  organized  under  the 
laws  of  this  state  or  to  the  vocational  rehabilitation  fund  above 
mentioned. 

(Source:  Fed.  Rev.  Act  1918,  §  214,  a-11.   Portions  in  italics  are  new.) 

Charitable  contributions. — Contributions  or  gifts  within  the  taxable 
year  are  deductible  to  an  aggregate  amount  not  in  excess  of  fifteen  per 
cent  of  the  taxpayer's  net  income  including  such  payments,  if  made  (a) 
to  corporations  or  associations  of  the  kind  exempted  from  tax  by  sub- 
division (6)  of  section  231  of  the  statute  or  (6)  to  the  special  fund  for 
vocational  rehabilitation  under  the  Vocational  Rehabilitation  Act  of  June 
27,  1918.  For  a  discussion  of  what  corporations  and  associations  are 
included  within  (a)  see  article  517.  A  gift  to  a  common  agency  (as  a 
war  chest)  for  several  such  corporations  or  associations  is  treated  like  a 
gift  directly  to  them.  In  connection  with  claims  for  this  deduction  there 
shall  be  stated  on  returns  of  income  the  name  and  address  of  each  organ- 
ization to  which  a  gift  was  made,  and  the  approximate  date  and  the 
amount  of  the  gift  in  each  case.  Where  the  gift  is  other  than  money,  the 
basis  for  calculation  of  the  amount  of  the  gift  shall  be  the  fair  market 
value  of  the  property  at  the  time  given.  A  gift  of  real  estate  to  a  city 
to  be  maintained  perpetually  as  a  public  park  is  not  an  allowable  deduc- 
tion. This  article  does  not  apply  to  gifts  by  partnerships,  estates  and 
trusts,  or  corporations.  (Art.  251.) 

Religious,  charitable,  scientific  and  educational  corporations. — The 

exemption  applies  only  to  a  corporation  or  association.  It  does  not  include 
the  case  of  a  trust,  under  which  the  trustee  is  authorized  to  use  the  trust 
property  for  religious  purposes.  In  order  to  be  exempt  the  corporation  or 
association  must  meet  three  tests:  (a)  it  must  be  organized  and  operated 
for  one  or  more  of  the  specified  purposes;  (6)  it  must  be  organized  and 
operated  exclusively  for  such  purposes;  and  (c)  no  part  of  its  income  must 
inure  to  the  benefit  of  private  stockholders  or  individuals. 

(1)  Charitable  corporations  include  an  association  for  the  relief  of  the 
families  of  clergymen,  even  though  the  latter  make  a  contribution  to  the 
fund  established  for  this  purpose;  or  for  furnishing  the  services  of  trained 
nurses  to  persons  unable  to  pay  for  them;  or  for  aiding  the  general  body 
of  litigants  by  improving  the  efficient  administration  of  justice.  Educa- 
tional corporations  may  include  an  association  whose  sole  purpose  is  the 
instruction  of  the  public.  This  is  true  of  an  association  to  promote  ac- 
quaintance with  the  Spanish  language  and  literature,  although  it  has  inci- 
dental amusement  features;  of  an  association  to  increase  knowledge  of 
the  civilization  of  another  country;  and  of  a  Chautauqua  association  whose 
primary  purpose  is  to  give  lectures  on  subjects  useful  to  the  individual 
and  beneficial  to  the  community  and  whose  amusement  features  are  inci- 
dental to  this  purpose.  But  associations  formed  to  disseminate  contro- 
versial or  partisan  propaganda  are  not  educational  within  the  meaning  of 


§  360  N.  Y.  ACT  AND  U.  S.  REGULATIONS  305 

the  statute.  Societies  designed  to  encourage  the  performance  of  first  class 
orchestral  music  are  not  exempt,  the  purpose  being  merely  to  provide  a 
high  grade  of  entertainment.  Scientific  corporations  include  an  associa- 
tion for  the  scientific  study  of  law,  to  the  end  of  improvement  in  its 
administration. 

(2)  Where  a  religious  corporation  owns  a  large  quantity  of  farm  land 
and  works  it,  and  also  manufactures  and  sells  clothing  and  other  articles 
for  profit,  it  is  not  operated  exclusively  for  religious  purposes  and  is  not 
exempt,  even  though  its  property  is  held  in  common  and  its  profits  do  not 
inure  to  the  benefit  of  individual  members  of  the  society. 

(3)  It  does  not  prevent  exemption  that  private  individuals,  for  whose 
benefit  a  charity  is  organized,  receive  the  income  of  the  corporation   or 
association.     The  statute  refers  to  individuals  having  a  personal  and  pri- 
vate interest  in  the  activities  of  the  corporation,  such  as  stockholders.     If, 
however,  a  corporation  issues  "voting  shares,"  which  entitle  the  holders 
upon  the  dissolution  of  the  corporation  to  receive  the  proceeds  of  its  prop- 
erty, including  accumulated  income,  the  right  to  exemption  does  not  exist, 
even  though  the  by-laws  provide  that  the  shareholders  shall  not  receive 
any  dividend  or  other  return  upon  their  shares.      (Art.  517.) 

Gifts  to  foreign  organizations  of  a  character  specified  in  the  Law  are 
deductible.  The  American  National  Red  Cross  falls  within  the  class  of 
associations  enumerated.  It  is  held  that  every  church  constitutes  a  re- 
ligious corporation  or  association  for  the  purposes  of  the  deduction.  Dona- 
tions made  to  missionary  funds,  to  the  church  building  funds  and  for  the 
benefit  of  other  activities  of  the  church,  being  for  the  benefit  or  further- 
ance of  religious  activities,  constitute  items  which  may  be  considered  in 
computing  the  deductions.  (Letter  to  The  Corporation  Trust  Company, 
signed  by  Commissioner  Daniel  C.  Roper,  and  dated  December  24,  1917.) 
Contributions  of  gifts  made  to  individuals  (as  to  a  needy  family)  do  not 
constitute  allowable  deductions.  (Questions  86  and  87,  1918  Income  Tax 
Primer. ) 

With  reference  to  the  ninth  paragraph  of  Section  5  of  the  Act  of  Septem- 
ber 8,  1916,  as  amended,  how  am  I  to  determine  to  what  extent  contribu- 
tions or  gifts  made  to  corporations  or  associations,  organized  exclusively 
for  religious,  charitable,  scientific  or  educational  purposes,  societies  for 
the  Prevention  of  Cruelty  to  Children  or  Animals,  may  be  claimed  as  a 
deduction  ? 

You  should  first  ascertain  what  your  taxable  net  income  would  be  were 
you  not  entitled  to  a  deduction  on  account  of  contributions  or  gifts  made 
to  such  corporations,  associations  or  societies,  and  then  if  the  aggregate 
of  your  contributions  and  gifts  made  during  the  year  to  such  organiza- 
tions does  not  exceed  15  per  cent  of  your  taxable  net  income  so  computed, 
their  aggregate  amount  may  be  entered  in  the  space  provided  therefor 
under  General  Deductions  on  a  personal  return  form.  If  such  aggregate 
amount  exceeds  15  per  cent  of  your  taxable  net  income  so  computed,  the 
excess  cannot  be  claimed. 

For  example:    Your  total  taxable  net  income  amounts  to  $20,000.    Dur- 


306  TAX   ON   PERSONAL   INCOMES  §  361 

ing  the  year  you  have  contributed  to  the  National  Red  Cross  $1,000,  to  the 
Young  Men's  Christian  Association  $1,000,  toward  the  construction  of  a 
new  church  $1,000,  and  to  the  Associated  Charities  of  your  home  city  $500, 
a  total  of  $3,500.  Fifteen  per  cent  of  your  total  net  income  amounts  to 
$3,000,  therefore,  this  latter  amount  may  be  claimed  as  a  deduction,  and 
the  balance  of  your  contributions  and  gifts  may  not  be  claimed.  (Question 
86,  1918  Income  Tax  Primer.) 

Deductions  allowable:  taxpayers  other  than  residents. 

11.  In  the  case  of  a  taxpayer  other  than  a  resident  of  the  state 
the  deductions  allowed  in  this  section  shall  be  allowed  only  if,  and 
to  the  extent  that,  they  are  connected  with  income  arising  from 
sources  within  the  state;  and  the  proper  apportionment  and  alloca- 
tion of  the  deductions  with  respect  to  sources  of  income  within  and 
without  the  state  shall  be  determined  under  rules  and  regulations 
to  be  prescribed  by  the  comptroller. 

(Source:  Fed.  Rev.  Act  1918,  §  2146.) 

Deductions  allowed  non-resident  alien  individuals. — In  the  case  of  a 
non-resident  alien  individual  the  deduction  for  interest  paid  or  accrued 
is  proportionate  to  his  income  from  sources  within  the  United  States  (see 
paragraph  (2)  of  subdivision  (a)  of  section  214  of  the  statute)  ;  for  losses 
incurred  in  any  transaction  entered  into  for  profit,  or  arising  from  cas- 
ualty or  theft,  is  confined  to  transactions  and  property  within  the  United 
States  (5), -(6);  for  charitable  contributions  excludes  gifts  to  foreign 
corporations  (11)  ;  and  for  business  expenses,  taxes  imposed  by  a  foreign 
country,  losses  in  trade,  bad  debts,  depreciation,  amortization,  depletion, 
and  loss  in  inventory  (1),  (3),  (4),  (7),  (8),  (9),  (10)  and  (12),  is 
allowed  only  if  and  to  the  extent  that  it  is  connected  with  income  arising 
from  a  source  within  the  United  States.  *  *  *  (Art.  271.) 

Items  not  deductible:  personal  expenses. 

SEC.  361.  Items  not  deductible.  In  computing  net  income  no 
deduction  shall  in  any  case  be  allowed  in  respect  of : 

1.  Personal,  living,  or  family  expenses; 

(Source:  Fed.  Rev.  Act  1918,  §  215  a.) 

Personal  and  family  expenses. — Insurance  paid  on  a  dwelling  owned 
and  occupied  by  a  taxpayer  is  a  personal  expense.  Premiums  paid  for 
life  insurance  by  the  insured  are  not  deductible.  In  the  case  of  a  pro- 
fessional man  who  rents  a  property  for  residential  purposes,  but  inci- 
dentally receives  there  clients,  patients  or  callers  in  connection  with  his 
professional  work  (his  place  of  business  being  elsewhere),  no  part  of  the 
rent  is  deductible  as  a  business  expense.  If,  however,  he  uses  part  of  the 
house  for  his  office,  such  portion  of  the  rent  as  is  properly  attributable  to 


§  361  N.  Y.  ACT  AND  U.  S.  REGULATIONS  307 

such  office  is  deductible.  The  father  is  legally  entitled  to  the  services  of 
his  minor  children,  and  allowances  which  he  gives  them,  whether  said  to 
be  in  consideration  of  services  or  otherwise,  are  not  allowable  deductions 
in  his  return  of  income.  Alimony  and  an  allowance  paid  under  a  separa- 
tion agreement  are  not  deductible  from  gross  income.  See  article  73.  The 
cost  of  the  equipment  of  an  army  officer  to  the  extent  only  that  it  is 
specially  required  by  his  profession  and  does  not  merely  take  the  place  of 
articles  required  in  civilian  life  is  deductible.  Accordingly,  the  cost  of  a 
sword  is  an  allowable  deduction,  but  the  cost  of  a  uniform  is  not.  (Art. 
291.) 

Traveling  expenses. — Traveling  expenses,  as  ordinarily  understood,  in- 
clude railroad  fares  and  meals  and  lodging.  If  the  trip  is  undertaken  for 
other  than  business  purposes,  such  railroad  fares  are  personal  expenses 
and  such  meals  and  lodging  are  living  expenses.  If  the  trip  is  on  business, 
the  railroad  fares  become  business  instead  of  personal  expenses,  but  the 
meals  and  lodging  continue  to  be  living  expenses  and  are  not  deductible 
in  computing  net  income,  (a)  If,  then,  an  individual  whose  business  re- 
quires him  to  travel  receives  a  salary  as  full  compensation  for  his  services, 
without  reimbursement  of  traveling  expenses,  his  expenses  for  railroad 
fares,  but  not  for  meals  and  lodging,  are  deductible  from  gross  income. 
(6)  If  such  an  individual  receives  a  salary  and  is  also  repaid  his  actual 
traveling  expenses,  no  part  of  such  expenses  is  deductible  from  gross 
income  and  no  part  of  such  repayment  is  returnable  as  income,  (c)  If 
such  an  individual  receives  a  salary  and  also  an  allowance  for  meals  and 
lodging,  as,  for  example,  a  per  diem  allowance  in  lieu  of  subsistence,  any 
excess  of  the  cost  of  such  meals  and  lodging  over  the  allowance  is  not 
deductible,  but  any  excess  of  the  allowance  over  the  actual  expenses  is 
taxable  income.  A  payment  for  the  use  of  a  sample  room  at  a  hotel  for 
the  display  of  goods  is  a  business  expense.  (Art.  292.) 

Expenses  of  commuters. — "A,"  who  is  employed  in  a  city,  has  his 
home  in  a  suburb.  He  pays  carfare  between  his  home  and  place  of  em- 
ployment and  takes  his  noon  lunch  in  the  city.  Can  the  amounts  expended 
for  carfare  and  lunch  be  claimed  as  a  business  expense?  (Answer.)  No, 
as  such  amounts  are  held  to  be  items  of  personal  expense.  (Question  52, 
1918  Income  Tax  Primer.) 

Items  of  personal  expense  or  items  connected  in  any  way  with  the  sup- 
port, maintenance  and  well-being  of  a  family  are  not  allowed;  neither  are 
the  amounts  paid  for  tools,  implements,  vehicles,  machinery,  or  surgical 
instruments  which  are  more  or  less  permanent  in  character,  nor  the  cost 
of  medical,  law  or  other  professional  books  nor  amounts  expended  in 
making  permanent  improvements  or  betterments  of  any  kind  whatsoever, 
allowable  as  deductions.  These  latter  items  are  held  to  be  investments  of 
capital  upon  which  depreciation  may  be  claimed.  (Question  46,  1918 
Income  Tax  Primer.) 


308  TAX   ON   PERSONAL   INCOMES  §  361 

Items  not  deductible:  permanent  improvements. 

2.  Any  amount  paid  out  for  new  buildings  or  for  permanent 
improvements  or  betterments  made  to  increase  the  value  of  any 
property  or  estate; 

(Source:  Fed.  Rev.  Act  1918,  §  215  6.) 

Items  not  deductible:  restoring  property. 

3.  Any  amount  expended  in  restoring  property  or  in  making 
good  the  exhaustion  thereof  for  which  an  allowance  is  or  has  been 
made;  or 

(Source:    Fed.  Rev.  Act  1918,  §  215  c.) 

Capital  expenditures.— Amounts  paid  for  increasing  the  capital  value 
or  for  restoring  the  depreciated  value  of  property  are  not  deductible  from 
gross  income.  See  section  214  (a)  (8)  of  the  statute  and  article  161. 
Amounts  expended  for  securing  a  copyright  and  plates,  which  remain  the 
properly  of  the  person  making  the  payments,  are  investments  of  capital. 
The  cost  of  defending  or  perfecting  title  to  property  constitutes  a  part  of 
the  cost  of  the  property  and  is  not  a  deductible  expense.  The  amount 
expended  for  architect's  services  is  part  of  the  cost  of  the  building.  Com- 
missions paid  in  purchasing  securities  are  a  part  of  the  cost  price  of  such 
securities.  Commissions  paid  in  selling  securities  are  an  offset  against 
the  selling  price.  Expenses  of  the  administration  of  an  estate,  such  as 
court  costs,  attorney's  fees  and  executor's  commissions,  are  chargeable 
against  the  corpus  of  the  estate  and  are  not  allowable  deductions.  Amounts 
to  be  assessed  and  paid  under  an  agreement  between  bondholders  or  stock- 
holders of  a  corporation,  to  be  used  in  a  reorganization  of  the  corporation, 
are  investments  of  capital  and  not  deductible  for  any  purpose  in  returns 
of  income.  See  article  543.  An  assessment  paid  by  a  stockholder  of  a 
national  bank  on  account  of  his  statutory  liability  is  similarly  not  de- 
ductible. (Art.  293.) 

Items  not  deductible :  premiums  on  insurance  for  employee. 

4.  Premiums  paid  on  any  life  insurance  policy,  covering  the  life 
of  any  officer  or  employee,  or  of  any  person  financially  interested 
in  any  trade  or  business  carried  on  by  the  taxpayer,  when  the  tax- 
payer is  directly  or  indirectly  a  beneficiary  under  such  policy. 

(Source:  Fed.  Rev.  Act  1918,  §  215  d.) 

Premiums  on  business  insurance. — Where  the  taxpayer  pays  premiums 
on  an  insurance  policy  on  the  life  of  an  officer,  employee  or  individual 
financially  interested  in  the  taxpayer's  business,  for  the  purpose  of  pro- 
tecting himself  from  loss  in  the  event  of  the  death  of  any  such  person, 
such  premiums  are  not  deductible  from  his  gross  income.  But  if  the  tax- 


§  362  N.  Y.  ACT  AND  U.  S.  REGULATIONS  309 

payer  is  in  no  sense  a  beneficiary  under  such  a  policy,  except  as  he  may 
derive  advantage  from  the  increased  efficiency  of  the  employee,  and  pays 
the  premiums  purely  as  reasonable  additional  compensation  of  such  em- 
ployee, they  are  allowable  deductions.  See  articles  33  and  105-108.  In 
either  case  whether  the  proceeds  of  such  policies  paid  upon  the  death  of 
the  insured  may  be  excluded  from  gross  income  or  must  be  included 
therein  depends  upon  whether  the  beneficiary  is  an  individual  or  a  cor- 
poration. (Art.  294.) 

Exemptions:  personal. 

SEC.  362.  Exemptions.  The  following  exemptions  shall  be  al- 
lowed to  any  resident  taxpayer: 

1.  In  the  case  of  a  single  person,,  a  personal  exemption  of  one 
thousand  dollars,  or  in  the  case  of  the  head  of  a  family  or  a  mar- 
ried person  living  with  husband  or  wife,  a  personal  exemption  of 
two  thousand  dollars.  A  husband  and  wife  living  together  shall 
receive  but  one  personal  exemption  of  two  thousand  dollars  against 
their  aggregate  net  income;  and  in  case  they  make  separate  returns, 
the  personal  exemption  of  two  thousand  dollars  may  be  taken  by 
either  or  divided  between  them. 

(Source:  Fed.  Rev.  Act  1918,  §  216  c.) 

Credits  against  net  income. — For  the  purpose  of  imposing  the  normal 
tax  the  taxpayer's  net  income  as  computed  pursuant  to  section  212  of  the 
statute  and  articles  21-26  is  first  reduced  by  the  sum  of  the  allowable 
credits.  *  *  *  (Art.  301.) 

Personal  exemption  of  head  of  family. — A  head  of  a  family  is  a  per- 
son who  actually  supports  and  maintains  in  one  household  one  or  more 
individuals  who  are  closely  connected  with  him  by  blood  relationship, 
relationship  by  marriage,  or  by  adoption,  and  whose  right  to  exercise 
family  control  and  provide  for  these  dependent  individuals  is  based  upon 
some  moral  or  legal  obligation.  In  the  absence  of  continuous  actual  res- 
idence together,  whether  or  not  a  person  with  dependent  relatives  is  a 
head  of  a  family  within  the  meaning  of  the  statute  must  depend  on  the 
character  of  the  separation.  If  a  father  is  absent  on  business  or  at  war, 
or  a  child  or  other  dependent  is  away  at  school  or  on  a  visit,  the  common 
home  being  still  maintained,  the  additional  exemption  applies.  If,  more- 
over, through  force  of  circumstances  a  parent  is  obliged  to  maintain  his 
dependent  children  with  relatives  or  in  a  boarding  house  while  he  lives 
elsewhere,  the  additional  exemption  may  still  apply.  If,  however,  without 
necessity  the  dependent  continuously  makes  his  home  elsewhere,  his  bene- 
factor is  not  the  head  of  a  family,  irrespective  of  the  question  of  support. 
A  resident  alien  with  children  abroad  is  not  the  head  of  a  family.  (Art. 
302.) 


310  TAX   ON   PERSONAL  INCOMES  §  362 

Personal  exemption  of  married  person. — In  the  case  of  a  married  man 
or  married  woman  the  joint  exemption  replaces  the  individual  exemption 
only  if  the  man  lives  with  his  wife  or  the  woman  lives  with  her  husband. 
In  the  absence  of  continuous  actual  residence  together,  whether  or  not  a 
man  or  woman  has  a  wife  or  husband  living  with  him  or  her  within  the 
meaning  of  the  statute  must  depend  on  the  character  of  the  separation. 
If  merely  occasionally  and  temporarily  a  wife  is  away  on  a  visit  or  a 
husband  is  away  on  business,  the  joint  home  being  maintained,  the  addi- 
tional exemption  applies.  The  unavoidable  absence  of  a  wife  or  husband 
at  a  sanatorium  or  asylum  on  account  of  illness  does  not  preclude  claiming 
the  exemption.  If,  however,  the  husband  voluntarily  and  continuously 
makes  his  home  at  one  place  and  the  wife  hers  at  another,  they  are  not 
living  together  for  the  purpose  of  the  statute,  irrespective  of  their  personal 
relations.  A  resident  alien  with  a  wife  residing  abroad  is  not  entitled  to 
the  joint  exemption.  (Art.  303.) 

Date  determining  exemption. — The  status  of  the  taxpayer  on  the  last 
day  of  his  taxable  year  determines  his  right  to  an  additional  exemption 
and  to  a  credit  for  dependents.  If  then  he  is  the  head  of  a  family,  the 
personal  exemption  of  $2,000  may  be  taken.  If  then  he  is  the  chief  sup- 
port of  a  dependent  who  is  under  eighteen  years  of  age  or  incapable  of 
self-support  because  mentally  or  physically  defective,  the  credit  of  $200 
may  be  taken.  But  an  unmarried  individual  or  a  married  individual  not 
living  with  husband  or  wife,  who  during  the  taxable  year  has  ceased  to 
be  the  head  of  a  family  or  to  have  dependents,  is  entitled  only  to  the  per- 
sonal exemption  of  $1,000  allowed  a  single  person.  A  husband  and  wife 
living  together  at  the  end  of  the  taxable  year  may  receive  but  one  personal 
exemption  of  $2,000,  divisible  as  they  please,  against  their  aggregate  net 
income.  If  an  individual  dies  during  the  taxable  year,  his  executor  or 
administrator  in  making  a  return  for  him  is  entitled  to  claim  his  full 
personal  exemption  according  to  his  status  at  the  time  of  his  death.  See 
also  section  219  (c)  of  the  statute  and  articles  346  and  421.  If  a  husband 
or  wife  so  dies  and  the  joint  personal  exemption  is  used  by  the  executor 
or  administrator  in  making  a  return  for  the  decedent,  an  undiminished 
personal  exemption  according  to  the  status  of  the  survivor  at  the  end  of 
the  taxable  year  may  be  claimed  in  the  survivor's  return.  If  a  taxpayer 
makes  a  return  for  a  period  other  than  a  taxable  year,  the  last  day  of 
such  period  shall  be  treated  as  the  last  day  of  the  taxable  year  for  the 
purpose  of  this  article.  (Art.  305.) 

Exemptions:  for  dependents. 

2.  Two  hundred  dollars  for  each  person  (other  than  husband  or 
wife)  dependent  upon  and  receiving  his  chief  support  from  the 
taxpayer,  if  such  dependent  person  is  under  eighteen  years  of  age 
or  is  incapable  of  self-support  because  mentally  or  physically  de- 
fective. 


§  363  N.  Y.  ACT  AND  U.  S.  REGULATIONS  311 

(Source:  Ped.  Rev.  Aot  1918,  §  216  d.) 

Credit  for  dependents.— A  taxpayer  receives  a  credit  of  $200  for  each 
person  (other  than  husband  or  wife),  whether  related  to  him  or  not  and 
whether  living  with  him  or  not,  dependent  upon  and  receiving  his  chief 
support  from  the  taxpayer,  provided  the  dependent  is  either  (a)  under 
eighteen  or  (&)  incapable  of  self-support  because  defective.  The  credit  is 
based  upon  actual  financial  dependency  and  not  mere  legal  dependency. 
It  may  accrue  to  a  taxpayer  who  is  not  the  head  of  a  family.  But  a  father 
whose  children  receive  half  or  more  of  their  support  from  a  trust  fund 
or  other  separate  source  is  not  entitled  to  the  credit.  (Art.  304.) 

Exemptions:  salaries  of  United  States'  officials. 

3.  A  taxpayer  receiving  salary,  wages,  or  other  compensation 
from  the  United  States  as  an  official  thereof,  exempt  from  taxation 
under  this  article,  shall  be  entitled  to  only  so  much  of  the  personal 
exemption  provided  for  in  this  section  as  is  in  excess  of  the  aggre- 
gate amount  of  such  salaries,  wages,  or  other  compensation. 

(Source:  New.) 

Exemptions:  credit  for  taxes  in  case  of  taxpayers  other  than 
residents. 

SEC.  363.  Credit  for  taxes  in  case  of  taxpayers  other  than  res- 
idents of  the  state.  Whenever  a  taxpayer  other  than  a  resident  of 
the  state  has  become  liable  to  income  tax  to  the  state  or  country 
where  he  resides  upon  his  net  income  for  the  taxable  year,  derived 
from  sources  within  this  state  and  subject  to  taxation  under  this 
article,  the  comptroller  shall  credit  the  amount  of  income  tax  pay- 
able by  him  under  this  article  with  such  proportion  of  the  tax  so 
payable  by  him  to  the  state  or  country  where  he  resides  as  his 
income  subject  to  taxation  under  this  article  bears  to  his  entire 
income  upon  which  the  tax  so  payable  to  such  other  state  or  coun- 
try was  imposed;  provided  that  such  credit  shall  be  allowed  only 
if  the  laws  of  said  state  or  country  grant  a  substantially  similar 
credit  to  residents  of  this  state  subject  to  income  tax  under  such 
laws. 

(Source:  Fed.  Rev.  Act  1918,  §  216  e.) 

Credits  to  non-resident  alien  individual. — A.  non-resident  alien  indi- 
vidual, similarly  to  a  citizen  or  resident,  is  entitled  for  the  purpose  of  the 
normal  tax  to  credit  a  personal  exemption,  and  $200  for  each  dependent, 
except  that  if  he  is  a  citizen  or  subject  of  a  country  which  imposes  an 


312  TAX   ON   PERSONAL  INCOMES  §  364 

income  tax  a  personal  exemption  or  credit  for  dependents  is  allowed  him 
"only  if  such  country  allows  a  similar  credit  to  citizens  of  the  United 
States  not  residing  in  such  country."  "If  such  country  allows  a  similar 
credit"  means  if  such  country  in  imposing  its  income  tax  allows  a  personal 
exemption  or  a  credit  for  dependents,  as  the  case  may  be,  and  allows  it 
without  discrimination  to  citizens  of  the  United  States  not  residing  in 
such  country.  For  the  meaning  of  "country"  see  article  382.  To  satisfy 
the  requirement  of  a  similar  credit  it  is  not  necessary  that  the  personal 
exemption  or  credit  for  dependents,  as  the  case  may  be,  should  be  the  same 
as  that  allowed  by  the  United  States  statute.  The  status  as  to  residence 
of  an  alien  individual  on  the  last  day  of  his  taxable  year  determines  his 
right  to  be  treated  as  a  resident  or  as  a  non-resident  for  such  year.  (Art. 
306.) 

( See  also  §  350-7,  Definition  of  Resident,  and  Chapter  on  Residence. ) 
(Note:    The  state  law  does  not  allow  any  personal  exemption  or  any 
exemption  for  dependents  in  the  case  of  a  taxpayer  other  than  a  resident.) 

Partnerships:  members  taxed  only  in  individual  capacities. 

SEC.  364.  Partnerships.  Individuals  carrying  on  business  in 
partnerships  shall  be  liable  for  income  tax  only  in  their  individual 
capacity.  There  shall  be  included  in  computing  the  net  income 
of  each  partner  his  distributive  share,  whether  distributed  or  not, 
of  the  net  income  of  the  partnership  for  the  taxable  year,  or,  if 
his  net  income  for  such  taxable  year  is  computed  upon  the  basis  of 
a  period  different  from  that  upon  the  basis  of  which  the  net  income 
of  the  partnership  is  computed,  then  his  distributive  share  of  the 
net  income  of  the  partnership  for  any  accounting  period  of  the 
partnership  ending  within  the  fiscal  or  calendar  year  upon  the 
basis  of  which  the  partner's  net  income  is  computed.  Taxpayers 
who  are  members  of  partnerships  may  be  required  by  the  comp- 
troller to  make  a  return  stating  the  gross  receipts  and  net  gains  or 
profits  of  the  partnership  for  any  taxable  year.  The  net  income  of 
the  partnership  shall  be  computed  in  the  same  manner  and  on  the 
same  basis  as  provided  in  computing  the  net  income  of  individuals 
except  that  the  deduction  provided  in  subdivision  ten  of  section 
three  hundred  and  sixty  shall  not  be  allowed  and  the  personal 
exemptions  provided  for  in  section  three  hundred  and  sixty-two 
shall  be  allowed  only  to  the  individual  partners. 

(Source:   Fed.  Rev.  Act,  1918— §  218-a  and  d.) 


§  364  TAX   ON   PERSONAL   INCOMES  313 

Note:  The  federal  law  taxes  the  stockholders  of  a  personal  service  cor- 
poration in  the  same  manner  as  the  members  of  a  partnership.) 

Partnerships. — Partnerships  as  such  are  not  subject  to  taxation  under 
the  statute,  but  are  required  to  make  returns  of  income.  See  section  224 
of  the  statute  and  articles  411  and  412.  Individuals  carrying  on  business 
in  partnership  are,  however,  taxable  upon  their  distributive  shares  of  the 
net  income  of  such  partnerships,  whether  distributed  or  not,  and  are 
required  to  include  such  distributive  shares  in  their  returns.  The  net 
income  of  a  partnership  shall  be  computed  in  the  same  manner  and  on  the 
same  basis  as  the  net  income  of  an  individual,  except  that  the  deduction 
of  contributions  or  gifts  is  not  permitted.  *  *  *  (Art.  321.) 

Partnerships  as  such  are  required  to  *  *  render  a  correct  return 

of  the  earnings,  profits,  and  income  of  the  partnership,  except  income 
exempt  from  tax  under  section  4  of  the  income-tax  law,  setting  forth  the 
item  of  gross  income  and  the  deductions  and  credits  allowed  by  law  as 
for  an  individual,  citizen,  or  resident  alien,  and  the  names  and  addresses 
of  the  individuals  who  would  be  entitled  to  the  net  earnings,  profits,  and 
income,  if  distributed.  In  computing  its  profits,  for  the  purpose  of  the 
income  tax  and  return  as  aforesaid,  a  partnership  shall  not  deduct  pre- 
miums on  life-insurance  policies  covering  the  lives  of  members  of  the 
partnership,  its  employees,  or  those  financially  interested  in  the  business 
or  trade  conducted  by  the  partnership  or  otherwise.  (Art.  30,  Reg.  33, 
Rev.,  Jan.  2,  1918.) 

Private  banks  as  partnerships. — Private  banks  which  do  not  have  this 
formal  organization  but  which  transact  business,  not  in  the  name  of  the 
bank,  but  in  the  name  of  the  individuals  who  compose  the  firm,  as  John 
Smith  &  Co.,  are  held  to  be  co-partnerships  *  *  *  .  In  such  cases  the 
individuals  who  compose  the  firm,  if  they  have  net  incomes  in  excess  of 
[$1,000  or  $2,000]  will  be  required  to  make  individual  returns  on  Form 
1040,  accounting  for  therein  their  respective  incomes  arising  and  accruing 
from  the  earnings  of  the  bank.  (Mimeograph  letter  No.  1271  to  Col- 
lectors, Oct.  19,  1915.) 

Distributive  shares  of  partners. — The  distributive  share  of  the  net 
income  of  a  partnership  which  a  partner  is  required  to  include  in  his  return 
is  his  proportionate  share  of  the  net  income  of  the  partnership,  either  (a) 
for  the  taxable  year  upon  the  basis  of  which  the  partner's  net  income  is 
computed,  or  ( 6 ) ,  if  the  partner's  net  income  is  computed  upon  the  basis 
of  a  taxable  year  different  from  that  upon  the  basis  of  which  the  net 
income  of  the  partnership  is  computed,  for  the  taxable  year  of  the  part- 
nership ending  within  the  taxable  year  upon  the  basis  of  which  the  part- 
ner's net  income  is  computed.  Amounts  earned  and  distributed  to  a  part- 
ner by  a  partnership  after  the  end  of  its  taxable  year  and  before  the  end 
of  his  corresponding  taxable  year  should  be  accounted  for  both  by  the 
partnership  and  by  the  partner  in  their  returns  for  their  next  succeeding 
taxable  years.  (Art.  322.) 

Undistributed  distributable  interests  once  taxed  are  not  taxed  again 
when  distributed. — Undivided  annual  net  profits  of  partnerships  thus 


314  TAX   ON   PERSONAL   INCOMES  §  365 

returned  by  the  individual  members  thereof,  and  tax  paid  thereon,  shall 
not,  when  said  profits  are  actually  distributed  and  paid  to  such  members, 
be  again  included  in  their  annual  return  as  a  part  of  their  gross  income. 
(Art.  14,  Reg.  33,  Jan.  5,  1914.) 

Credit  to  members  on  account  of  non-deductible  donations  made  by 
a  partnership. — Any  donation  allowed  as  a  business  expense  of  the  part- 
nership would  of  course  not  be  deductible  by  individual  members  of  the 
partnership  in  their  personal  income  tax  returns.  Donations  made  by  the 
partnership  but  not  allowable  as  deductions  by  it  may  be  prorated  among 
the  individual  members  of  the  partnership  for  the  purpose  of  their  indi- 
vidual income  tax  returns,  as  contributions  or  gifts,  subject  to  the  limita- 
tions of  Section  5  of  the  Act  of  September  8,  1916,  subdivision  a,  clause 
ninth,  added  by  Section  1201  of  the  Act  of  October  3,  1917.  (Letter  to 
The  Corporation  Trust  Company,  signed  by  Commissioner  Daniel  C.  Roper, 
and  dated  May  23,  1918.) 

Amount  received  by  an  employee  of  a  partnership  under  a  partici- 
pation of  profits  agreement  is  deductible  by  the  partnership  as  an 
expense. — "A  partnership  agrees  with  an  expert  to  take  charge  of  one  of 
its  departments  upon  a  participation  of  profits  basis;  that  is,  the  expert 
serves  without  salary  and  his  compensation  is  in  the  form  of  20  %  of  the 
net  profits  of  his  department  at  the  end  of  the  year.  May  the  amount 
represented  by  the  20%  be  deducted  as  an  expense  to  the  partnership  in 
determining  the  amount  of  taxable  income  to  the  actual  members  of  the 
partnership?"  (Answer.)  It  appears  from  your  statement  of  facts  that 
the  relationship  existing  between  the  partnership  and  the  "expert"  is 
merely  that  of  employer  and  employee  and,  such  being  the  case,  the  office 
holds  that  the  amount  of  compensation  paid  to  the  individual  constitutes 
an  item  of  business  expense  to  the  partnership  and  may  be  so  considered 
in  computing  the  amount  of  taxable  income  accruing  to  the  partnership 
members.  (Letter  to  The  Corporation  Trust  Company,  signed  by  Acting 
Commissioner  David  A.  Gates,  and  dated  June  30,  1916.) 

Tax  on  income  of  estates  and  trusts. 

SEC.  365.  Estates  and  trusts.  1.  The  tax  imposed  by  this 
article  shall  apply  to  the  income  of  estates  or  of  any  kind  of  prop- 
erty held  in  trust,  including: 

(a)  Income  received  by  estates  of  deceased  persons  during  the 
period  of  administration  or  settlement  of  the  estate; 

(b)  Income  accumulated  in  trust  for  the  benefit  of  unborn  or 
unascertained  persons  or  persons  with  contingent  interests ; 

(c)  Income  held  for  future  distribution  under  the  terms  of  the 
will  or  trust;  and 

(d)  Income  which  is  to  be  distributed  to  the  beneficiaries  period- 


§  365  TAX   ON   PERSONAL   INCOMES  315 

ically,  whether  or  not  at  regular  intervals,  and  the  income  collected 
by  a  guardian  of  an  infant  to  be  held  or  distributed  as  the  court 
may  direct. 

(Source:  Fed.  Rev.  Act  1918,  §  219.) 

See  Chapter  XXVIII  on  "Estate®  and  Trusts,"  supra.) 


Estates  and  trusts.  —  While  certain  estates  and  trusts  are  subject  to  tax 
as  such  and  others  are  not,  the  fiduciary  in  every  case  is  required  to  make 
a  return  of  income.  See  section  225  of  the  statute  and  articles  421-425. 
The  net  income  of  an  estate  or  trust  shall  be  computed  in  the  same  manner 
and  on  the  same  basis  as  the  net  income  of  an  individual,  except  that  in 
place  of  the  deduction  allowed  individuals  of  certain  gifts  or  contributions 
there  may  be  deducted  from  the  gross  income  any  part  of  it  which  during 
the  taxable  year  is  pursuant  to  the  will  or  trust  deed  paid  to  or  perma- 
nently set  aside  for  the  United  States,  a  State,  a  Territory,  or  any  political 
subdivision  thereof,  the  District  of  Columbia,  or  any  corporation  or  asso- 
ciation of  the  kind  described  in  section  231  (6)  of  the  statute  and  article 
517.  See  section  212  and  articles  21-26.  The  income  of  a  revocable  trust 
must  be  included  in  the  gross  income  of  the  grantor,  (Art.  341.) 

Fiduciary  responsible  for  return. 

2.  The  fiduciary  shall  be  responsible  for  making  the  return  of 
income  for  the  estate  or  trust  for  which  he  acts.  The  net  income 
of  the  estate  or  trust  shall  be  computed  in  the  same  manner  and 
on  the  same  basis  as  provided  in  this  article  for  individual  tax- 
payers, except  that  there  shall  also  be  allowed  as  a  deduction  any 
part  of  the  gross  income  which  pursuant  to  the  terms  of  the  will 
or  deed  creating  the  trust,  is  during  the  taxable  year  paid  to  or 
permanently  set  aside  for  the  United  States,  any  state,  territory, 
or  any  political  subdivision  thereof,  or  the  District  of  Columbia, 
or  any  corporation  or  association  organized  and  operated  exclu- 
sively for  religious,  charitable,  scientific  or  educational  purposes, 
or  for  the  prevention  of  cruelty  to  children  or  animals,  no  part  of 
the  net  earnings  of  which  inures  to  the  benefit  of  any  private  stock- 
holder or  individual;  and  in  cases  under  paragraph  (d)  of  sub- 
division one  of  this  section,  the  fiduciary  shall  include  in  the  return 
a  statement  of  each  beneficiary's  distributive  share  of  such  net 
income,  whether  or  not  distributed  before  the  close  of  the  taxable 
year  for  which  the  return  is  made. 


316  TAX   ON  PERSONAL  INCOMES  §  365 

Income  credited  to  beneficiary  may  be  deducted. 

3.  In  cases  under  paragraphs  (a),  (b),  and  (c)  of  subdivision 
one,  of  this  section,  the  tax  shall  be  imposed  upon  the  net  income 
of  the  estate  or  trust  and  shall  be  paid  by  the  fiduciary,  except  that 
in  determining  the  net  income  of  the  estate  of  any  deceased  person 
during  the  period  of  administration  or  settlement  there  may  be 
deducted  the  amount  of  any  income  properly  paid  or  credited  to 
any  legatee,  heir  or  other  beneficiary.  In  such  cases,  the  estate  or 
trust  shall  be  allowed  the  same  exemptions  as  are  allowed  to  single 
persons  under  section  three  hundred  and  sixty-two,  and  in  such 
cases  an  estate  or  trust  created  by  a  person  not  a  resident  and  an 
estate  of  a  person  not  a  resident  shall  be  subject  to  tax  only  to  the 
extent  to  which  individuals  other  than  residents  are  liable  under 
section  three  hundred  and  fifty-nine,  subdivision  three. 

(Note:  Words  in  italics  are  new.) 

Where,  during  the  period  of  administration,  an  executor  converts  the 
estate  in  his  possession  as  such  executor  into  money  for  the  purpose  of 
settling  the  estate  and  closing  tne  administration  and  in  which  conversion 
a  profit  is  realized  which  with  other  income  exceeds  $1,000,  a  return  of 
income  should  be  made  by  the  executor  covering  the  period  of  administra- 
tion in  which  should  be  included  all  gains,  profits,  and  income  of  the 
estate  during  such  period,  and  he  should  pay  the  tax  found  by  such  return 
to  be  due.  The  income  of  the  estate  being  thus  freed  of  income-tax  lia- 
bility may  thereafter  be  dealt  with  without  further  regard  to  income-tax 
requirements.  (Art.  29,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

Estates  and  trusts  taxed  to  fiduciary. — In  the  case  of  (a)  estates  of 
decedents  before  final  settlement  and  of  (&)  trusts,  whether  created  by 
will  or  deed,  for  accumulation  of  income,  whether  for  unascertained  per- 
sons or  persons  with  contingent  interests  or  otherwise,  the  income  is  taxed 
to  the  fiduciary  as  to  any  single  individual,  except  that  from  the  income 
of  a  decedent's  estate  there  may  first  be  deducted  any  amount  of  income 
properly  paid  or  credited  to  a  beneficiary.  See  section  200  of  the  statute 
and  articles  1521  and  1522.  Where  under  the  terms  of  the  will  or  deed 
tne  trustee  may  in  his  discretion  distribute  the  income  or  accumulate  it, 
the  income  is  taxed  to  the  trustee,  irrespective  of  the  exercise  of  his  dis- 
cretion. The  imposition  of  the  tax  is  not  affected  by  the  fact  that  an 
ultimate  beneficiary  may  be  a  person  exempt  from  tax.  A  statutory  allow- 
ance paid  a  widow  out  of  the  corpus  of  the  estate  is  not  deductible  from 
gross  income.  As  an  intestate's  real  estate  does  not  pass  to  his  adminis- 
trator, upon  a  sale  by  the  heirs,  whether  before  or  after  settlement  of  the 
estate,  each  heir  is  taxed  individually  on  any  profit  derived.  (Art.  342.) 


§  365  N.  Y.  ACT  AND  U.  S.  REGULATIONS  317 

Decedent's  estate  during  administration. — The  "period  of  adminis- 
tration or  settlement  of  the  estate"  is  the  period  required  by  the  executor 
or  administrator  to  perform  the  ordinary  duties  pertaining  to  administra- 
tion, in  particular  the  collection  of  assets  and  the  payment  of  debts  and 
legacies.  It  is  the  time  actually  required  for  this  purpose,  whether  longer 
or  shorter  than  the  period  specified  in  the  local  statute  for  the  settlement 
of  estates.  Where  an  executor,  who  is  also  named  as  trustee,  fails  to  obtain 
his  discharge  as  executor,  the  period  of  administration  continues  up  to  the 
time  when  the  duties  of  administration  are  complete  and  he  actually 
assumes  his  duties  as  trustee,  whether  pursuant  to  an  order  of  the  court 
or  not.  No  taxable  income  is  realized  from  the  passage  of  property  to  the 
executor  or  administrator  on  the  death  of  the  decedent,  even  though  it 
may  have  appreciated  in  value  since  the  decedent  acquired  it.  In  the 
event  of  delivery  of  property  in  kind  to  a  legatee  or  distributee,  no  income 
is  realized.  Where,  however,  the  executor  sells  property  of  the  estate  for 
more  than  its  value  at  the  death  of  the  decedent,  the  excess  is  income 
taxable  to  the  estate.  (Art.  343.) 

(Note:  See  also  Art.  293  supra,  Capital  Expenditures — for  expenses  of 
administration. ) 

Incidence  of  tax  on  estate  or  trust. — Liability  for  payment  of  the  tax 
attaches  to  the  person  of  an  executor  or  administrator  up  to  and  after 
his  discharge,  where  prior  to  distribution  and  discharge  he  had  notice  of 
his  tax  obligations  or  failed  to  exercise  due  diligence  in  determining 
whether  or  not  such  obligations  existed.  Liability  for  the  tax  also  follows 
the  estate  itself,  and  when  by  reason  of  the  distribution  of  the  estate  and 
the  discharge  of  the  executor  or  administrator  it  appears  that  collection 
of  the  tax  can  not  be  made  from  the  executor  or  administrator,  the  leg- 
atees or  distributees  must  account  for  their  proportionate  share  of  the 
tax  due  and  unpaid.  The  same  considerations  apply  to  other  trusts. 
Where  the  tax  has  been  paid  on  the  net  income  of  an  estate  or  trust  by 
the  fiduciary,  such  income  is  free  from  tax  when  distributed  to  the  bene- 
ficiaries. (Art.  344.) 

Final  return  on  final  accounting.— Administrators  or  executors  may, 
immediately  after  their  discharge,  upon  final  accounting,  file  with  the 
proper  collector  of  internal  revenue  a  return  of  income  for  the  income  of 
the  estate  for  the  calendar  year  in  which  the  administration  was  closed, 
and  should  pay  the  tax  found  by  such  return  to  be  due  immediately  upon 
receipt  of  notice  and  demand  for  the  amount  of  such  tax.  There  should  be 
attached  to  this  return  a  copy  of  the  certificate,  under  seal,  setting  forth 
the  fact  of  final  accounting  and  discharge  of  the  executor  or  adminis- 
trator. The  liability  for  return  is  fixed  by  the  law  as  of  December  31,  and 
return  will  be  required  in  accordance  with  the  provisions  of  law  existing  on 
that  date. 

An  ancillary  administrator  is  held  to  be  merely  an  agent  of  the  dom- 
iciliary administrator  and  should  transmit  to  him  all  information  as  to 
income  of  the  estate  received  by  the  ancillary  administrator,  to  the  end 


318  TAT   ON   PERSONAL   INCOMES  §  365 

that  the  original  administrator  may   make  a  return   covering  the  entire 
income  of  the  estate.      (Art.  26,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

When  beneficiary  makes  return  of  his  distributive  share. 

4.  In  cases  under  paragraph  (d)  of  subdivision  one  of  this  sec- 
tion and  in  the  case  of  any  income  of  an  estate  during  the  period 
of  administration  or  settlement  permitted  by  subdivision  three  to 
be  deducted  from  the  net  income  upon  which  tax  is  to  be  paid  by 
the  fiduciary,  the  tax  shall  not  be  paid  by  the  fiduciary,  but  there 
shall  be  included  in  computing  the  net  income  of  each  beneficiary 
his  distributive  share  whether  distributed  or  not,,  of  the  net  income 
of  the  estate  or  trust  for  the  taxable  year,  or,  if  his  net  income  for 
such  taxable  year  is  computed  upon  the  basis  of  a  period  different 
from  that  upon  the  basis  of  which  the  net  income  of  the  estate  or 
trust  is  computed,  then  his  distributive  share  of  the  net  income  of 
the  estate  or  trust  for  any  accounting  period  of  such  estate  or  trust 
ending  within  the  fiscal  or  calendar  year  upon  the  basis  of  which 
such  beneficiary's  net  income  is  computed.  In  such  cases  the  in- 
come of  a  beneficiary  of  such  estate  or  trust  not  a  resident  shall  be 
taxable  only  to  the  extent  provided  in  section  three  hundred  and 
fifty-nine,  subdivision  three,  for  individuals  other  than  residents. 

(Note:   Words  in  italics  are  new.) 

Estates  and  trusts  taxed  to  beneficiaries. — In  the  case  of  (a)  a  trust 
the  income  of  which  is  distributable  periodically,  (6)  an  ordinary  guardian- 
ship of  a  minor,  and  (c)  an  estate  of  a  decedent  before  final  settlement 
as  to  any  income  properly  paid  or  credited  as  such  to  a  beneficiary,  the 
income  is  taxable  directly  to  the  beneficiary  or  beneficiaries.  Each  bene- 
ficiary must  include  in  his  return  his  distributive  share  of  the  net  income, 
even  though  not  yet  paid  him,  but  if  the  taxable  year  on  the  basis  of 
which  he  makes  his  returns  fails  to  coincide  with  the  annual  accounting 
period  of  the  estate  or  trust,  then  he  need  only  include  in  his  return  his 
distributive  share  for  such  accounting  period  ending  within  his  taxable 
year.  The  regulations  governing  partnerships  are  generally  applicable  to 
such  an  estate  or  trust.  (Art.  345.) 

Credits  to  trust  or  beneficiary. —  (a)  In  the  case  of  an  estate  or  trust 
taxed  to  the  fiduciary  it  is  allowed  the  same  credits  against  net  income 
as  a  singfe  person,  including  a  personal  exemption  of  $1,000,  but  no  credit 
for  dependents.  (6)  In  the  case  of  an  estate  or  trust  taxed  to  the  bene- 
ficiaries each  beneficiary  is  allowed  for  the  purpose  of  the  normal  tax,  in 
addition  to  his  individual  credits,  his  proportionate  share  of  such  divi- 
dends from  domestic  and  resident  foreign  corporations  and  of  such  interest 


§  366  N.  Y.  ACT  AND  U.  S.  REGULATION'S  319 

not  entirely  exempt  from  tax  upon  obligations  of  the  United  States  and 
bonds  of  the  War  Finance  Corporation  as  are  received  by  the  estate  or 
trust.  Each  beneficiary  is  entitled  to  but  one  personal  exemption,  no 
matter  from  how  many  trusts  he  may  receive  income.  (Art.  346.) 

Obligation  of  a  receiver  for  an  individual  to  make  return  and  pay 
tax. — As  to  the  duty  of  a  receiver  under  interlocutory  orders  of  the  United 
States  District  Court  to  make  return  for  and  pay  tax  on  the  income 
received  by  him  on  funds  which  he  holds  in  trust  as  receiver  under  an 
appointment  as  aforesaid.  IfUnder  the  second  case,  stated  in  Section  2 
(b),  Act  of  September  8,  1916— "The  income  of  *  *  *  any  kind  of 
property  held  in  trust  *  *  *  (except  when  the  income  is  returned  for 
the  purpose  of  the  tax  by  the  beneficiary)"  is  subject  to  the  normal  and 
additional  tax,  the  tax  to  be  assessed  to  the  trustee.  Under  the  provisions 
of  Section  7  (a)  of  the  Act  the  receiver  will  be  permitted  to  deduct,  as  an 
exemption,  [$1,000]  in  his  return.  This  return  is  to  be  made  on  Income 
Tax  Form  1040.  IfThe  receiver  is  indemnified  by  the  Act  against  the 
claims  or  demands  of  every  beneficiary  for  all  payments  of  taxes  which 
he  shall  be  required  to  make  under  the  provisions  of  the  Act  of  September 
8,  1916,  and  he  shall  have  credit  for  the  amount  of  such  payments  against 
the  beneficiary  or  principal  in  any  accounting  which  he  makes  as  such 
receiver.  HThe  income  being  thus  freed  of  tax  liability  imposed  by  the 
statute,  it  may  thereafter  be  dealt  with  by  the  receiver  without  further 
regard  to  the  requirements  of  the  tax  statute.  (Letter  to  William  Bev- 
erly Winslow,  New  York,  N.  Y.,  signed  by  Deputy  Commissioner  L.  F. 
Speer,  and  dated  February  9,  1917.) 

Unless  the  beneficiary  is  under  some  disability  which  requires  the  fidu- 
ciary to  act,  the  beneficiary  will  make  his  own  return  and  account  for  the 
tax  upon  his  entire  net  income.  (T.  D.  2090,  Dec.  14,  1914.) 

When  fiduciary  may  make  return  for  beneficiary.— As  each  such  fidu- 
ciary acts  solely  in  behalf  of  the  beneficiaries  of  the  trust,  the  annual 
return  required  in  such  cases  has  reference  only  to  the  income  accruing 
and  payable  through  said  fiduciary,  and  not  to  the  income  of  the  bene- 
ficiary derived  from  other  sources.  If,  however,  such  fiduciary  is  legally 
authorized  to  act  for  such  beneficiary  as  agent  or  attorney  in  fact,  he  may 
in  such  case  also  make  for  the  beneficiary  the  personal  annual  return 
required  by  law.  (Art.  72,  Reg.  33,  Jan.  5,  1914.) 

Withholding  agent  to  deduct  two  per  centum  from  compensa- 
tion. 

SEC.  366.  Information  and  payment  at  source.  1.  Every  with- 
holding agent  shall  deduct  and  withhold  two  per  centum  from  all 
salaries,  wages,  commissions,  gratuities,  emoluments,  perquisites 
and  other  fixed  and  determinable  annual  or  periodical  compensa- 
tion of  whatever  kind  and  in  whatever  form  paid  or  received,  earned 
for  personal  services  and  taxable  under  this  article,  of  which  he 


320  TAX   ON   PERSONAL  INCOMES  §  366 

shall  have  control,  receipt,  custody,  disposal  or  payment,,  if  the 
amount  paid  or  received  or  to  be  paid  or  received  in  any  taxable 
year  on  account  of  any  individual  equals  or  exceeds  one  thousand 
dollars,  unless  there  shall  be  filed  with  the  withholding  agent, 
before  the  time  when  he  is  required  to  make  return  and  payment 
thereof,  a  certificate  in  such  form  as  shall  be  prescribed  by  the 
comptroller  to  the  effect  that  the  person  entitled  to  such  salary, 
wage,  commission,  gratuity,  emolument,  perquisite  or  other  com- 
pensation is  a  resident  and  setting  forth  his  residence  address 
within  the  state. 

(Source:  Fed.  Rev.  Act  1918,  §  221,  but  the  State  Law  requires  with- 
holding only  in  the  case  of  compensation  for  personal  services.  See  also 
§  350,  10,  supra,  for  definition  of  "withdrawing  agent" 

The  Regulations  of  the  State  Comptroller,  Articles  261-269,  issued 
June  nth,  1919,  will  be  found  under  the  chapter  on  Payment  and  In- 
formation at  the  Source — Withholding,  supra. 

Fixed  or  determinable  annual  or  periodical  income. — Only  (a)  fixed 
or  determinable,  (6)  annual  or  periodical  income  is  subject  to  withhold- 
ing. *  *  *  (a)  Income  is  fixed  when  it  is  to  be  paid  in  amounts  defi- 
nitely predetermined.  On  the  other  hand,  it  is  determinable  whenever  there 
is  a  basis  of  calculation  by  which  the  amount  to  be  paid  may  be  ascer- 
tained. ( 6 )  The  income  need  not  be  paid  annually  if  it  is  paid  periodically, 
that  is  to  say,  from  time  to  time,  whether  or  not  at  regular  intervals.  That 
the  length  of  time  during  which  the  payments  are  to  be  made  may  be 
increased  or  diminished  in  accordance  with  someone's  will  or  with  the 
happening  of  an  event  does  not  make  the  payments  any  the  less  deter- 
minable or  periodical.  A  salesman  working  by  the  month  for  a  commis- 
sion on  sales  which  is  paid  or  credited  monthly  receives  determinable 
periodical  income.  (Art.  362.) 

No  deduction  at  source  on  salaries  for  service  rendered  abroad  or 
on  rent  on  property  located  abroad. — It  is  held  that  salaries,  wages, 
commissions,  and  rents  paid  by  domestic  corporations,  resident  individuals, 
or  partnerships  to  non-resident  alien  employees  for  services  rendered  en- 
tirely in  a  foreign  country  and  for  property  located  in  a  foreign  country 
are  not  subject  to  deduction  and  withholding  of  the  normal  tax  and  such 
payments  of  income  will  not  be  subject  to  the  income  tax  in  the  hands  of 
the  recipient  as  from  a  source  within  the  United  States.  (Art.  32,  Reg. 
33,  Rev.,  Jan.  2,  1918.) 

Withholding  agent  required  to  make  return  of  information. 

2.  Every  withholding  agent  shall  make  return  to  the  comptroller 
of  complete  information  concerning  the  amount  of  all  interest,  rent, 


§  366  N.  Y.  ACT  AND  U.  S.  REGULATIONS  321 

salaries,  wages,  premiums,  annuities,  compensations,  remunerations, 
emoluments  or  other  fixed  or  deter minable  gains,  profits  and  in- 
come, except  interest  coupons  payable  to  bearer,  of  any  taxpayer 
taxable  under  this  article  of  one  thousand  dollars  or  more  in  any 
taxable  year  under  such  regulations  and  in  such  form  and  manner 
and  to  such  extent  as  may  be  prescribed  by  the  comptroller. 

(Source:  New.   See  regulations  of  State  Comptroller,  chapter  — ,  supra.) 

Date  return  due :  withholding  agent  indemnified. 

3.  Every  withholding  agent  required  to  deduct  and  withhold  any 
tax  under  subdivision  one  of  this  section  shall  make  return  thereof 
on  or  before  the  fifteenth  day  of  March  in  each  year  and  shall  at 
the  same  time  pay  the  tax  to  the  comptroller.     Every  such  indi- 
vidual corporation  or  partnership  is  hereby  made  liable  for  such 
tax  and  is  hereby  indemnified  against  the  claims  and  demands  of 
any  individual,  corporation  or  partnership  for  the  amount  of  any 
payments  made  in  accordance  with  the  provisions  of  this  section. 

(Source:   Fed.  Rev.  Act  1918,  §  221.  c.    Portions  in  italics  new.) 

Withheld  income  to  be  included  in  return  of  recipient. 

4.  Income  upon  which  any  tax  is  required  to  be  withheld  at  the 
source  under  this  section  shall  be  included  in  the  return  of  the 
recipient  of  such  income,  but  any  amount  of  tax  so  withheld  shall 
be  credited  against  the  amount  of  income  tax  as  computed  in  such 
return. 

(Source:   Fed.  Rev.  Act  1918,  §  221,  d.) 

Tax  not  to  be  collected  twice. 

5.  If  any  tax  required  under  this  section  to  be  deducted  and 
withheld  is  paid  by  the  recipient  of  the  income,  it  shall  not  be 
recollected  from  the  withholding  agent;  nor  in  cases  in  which  the 
tax  is  so  paid  shall  any  penalty  be  imposed  upon  or  collected  from 
the  recipient  of  the  income  or  the  withholding  agent  for  failure  to 
return  or  pay  the  same,  unless  such  failure  was  fraudulent  and  for 
the  purpose  of  evading  payment. 

(Source:  Fed.  Rev.  Act  1918,  §  221,  e.) 


322  TAX  ON  PERSONAL  INCOMES  §  367 

Who  must  make  return:  individual. 

SEC.  367.  Taxpayers'  returns.  Every  taxpayer  having  a  net 
income  for  the  taxable  year  of  one  thousand  dollars  or  over  if  single 
or  if  married  and  not  living  with  husband  or  wife,  or  of  two  thou- 
sand dollars  or  over  if  married  and  living  with  husband  or  wife, 
shall  make  under  oath  a  return  stating  specifically  the  items  of  his 
gross  income  and  the  deductions  and  credits  allowed  by  this  article. 
If  a  husband  and  wife  living  together  have  an  aggregate  net  income 
of  two  thousand  dollars  or  over,  each  shall  make  such  a  return 
unless  the  income  of  each  is  included  in  a  single  joint  return.  If 
the  taxpayer  is  unable  to  make  his  own  return  the  return  shall  be 
made  by  a  duly  authorized  agent  or  by  the  guardian  or  other  per- 
son charged  with  the  care  of  the  person  or  property  of  such  tax- 
payer. A  taxpayer  other  than  a  resident  shall  not  be  entitled  to 
the  deductions  authorized  by  section  three  hundred  and  sixty  unless 
he  shall  make  under  oath  a  complete  return  of  his  gross  income 
both  within  and  without  the  state. 

(Source:  Fed.  Rev.  Act  1918,  §  223;  portions  in  italics  new.) 

Individual  returns. — Every  individual  whose  net  income,  as  denned  in 
section  212  of  the  statute  and  articles  21-26,  is  $1,000  or  over  for  the  tax- 
able year  must  make  a  return  of  income  unless  married  and  living  with 
husband  or  wife  as  denned  in  article  303.  The  return  shall  be  for  his 
taxable  year,  whether  calendar  or  fiscal.  Whether  or  not  an  individual 
is  the  head  of  a  family  or  has  dependents  is  immaterial  in  determining 
his  liability  to  render  a  return.  If  an  individual  is  a  married  person 
living  with  husband  or  wife,  no  return  need  be  made  where  their  aggre- 
gate net  income  is  less  than  $2,000;  but  a  separate  return  must  be  made 
by  each  of  them,  regardless  of  the  amount  of  the  individual  income  of 
each,  where  their  aggregate  net  income  is  $2,000  or  over,  unless  they  join 
in  a  single  return.  The  husband  shall  include  in  his  return  the  income 
derived  from  services  rendered  by  the  wife  or  from  the  sale  of  products 
of  her  labor  if  she  does  not  file  a  separate  return  or  join  with  him  in  a 
return  setting  forth  her  income  separately.  (Art.  401.) 

Return  of  income  of  minor. — An  individual  under  21  years  of  age  or 
under  the  statutory  age  of  majority  where  he  lives,  whatever  it  may  be,  is 
required  to  render  a  return  of  income  if  he  has  a  net  income  of  his  own 
of  $1,000  or  over  for  the  taxable  year.  If  he  is  married  see  article  401. 
If  the  aggregate  of  the  net  income  of  a  minor  from  any  property  which 
he  possesses,  and  from  any  funds  held  in  trust  for  him  by  a  trustee  or 
guardian,  and  from  any  earnings  for  his  own  use,  is  at  least  $1,000,  a  re- 
turn as  in  the  case  of  any  other  individual  must  be  made  by  him  or  by 


§  367  N.  Y.  ACT  AND  U.  S.  REGULATIONS  323 

his  guardian  or  some  other  person  charged  with  the  care  of  his  person 
or  property  for  him.  See  article  422.  If,  however,  a  minor  is  dependent 
upon  his  parent,  who  appropriates  or  may  appropriate  his  earnings,  such 
earnings  are  income  of  the  parent  and  not  of  the  minor  for  the  purpose 
of  the  normal  tax  and  surtax.  In  the  absence  of  proof  to  the  contrary 
a  parent  will  be  assumed  not  to  have  emancipated  his  minor  child  and 
must  include  in  his  return  any  earnings  of  the  minor.  (Art.  403.) 

Return  of  income  of  nonresident  alien. — A  nonresident  alien  in- 
dividual shall  make  or  have  made  a  full  and  accurate  return  on  form  1040 
(revised)  or  form  1040  A  (revised)  of  his  income  received  from  sources 
within  the  United  States,  regardless  of  amount,  unless  the  tax  on  such 
income  has  been  fully  paid  at  the  source.  See  section  217  of  the  statute 
and  articles  311-316.  The  responsible  representatives  of  nonresident 
aliens  in  connection  with  any  sources  of  income  which  such  nonresident 
aliens  may  have  within  the  United  States  shall  make  a  return  of  such 
income,  and  shall  pay  any  and  all  tax,  normal  and  additional,  assessed 
upon  the  income  received  by  them  in  behalf  of  their  nonresident  alien  prin- 
cipals, in  all  cases  where  the  tax  on  income  so  in  their  receipt,  custody  or 
control  shall  not  have  been  withheld  at  the  source.  The  agent  of  a  non- 
resident alien  is  responsible  for  a  correct  return  of  all  income  accruing 
to  his  principal  within  the  purview  of  the  agency.  The  agency  appoint- 
ment will  determine  how  completely  the  agent  is  substituted  for  the  prin- 
cipal for  tax  purposes.  Where  upon  filing  a  return  of  income  it  appears 
that  a  nonresident  alien  is  not  liable  for  tax,  but  nevertheless  a  tax  shall 
have  been  withheld  at  the  source,  in  order  to  obtain  a  refund  on  the  basis 
of  the  showing  made  by  the  return  there  should  be  attached  to  it  a  state- 
ment showing  accurately  the  amounts  of  tax  withheld,  with  the  names 
and  post-office  addresses  of  all  withholding  agents.  (Art.  404.) 

Return  of  corporate  dividends. — Dividends  on  stock  of  domestic  cor- 
porations or  resident  foreign  corporations  are  prima  facie  income  of  the 
record  owner  of  the  stock,  and  such  record  owner  will  be  liable  for  any 
additional  tax  based  thereon,  unless  a  disclosure  of  the  actual  ownership 
is  made  to  the  Commissioner  on  form  1087  (revised)  which  shall  show 
that  the  record  owner  is  not  the  actual  owner  and  who  the  owner  is  and 
his  address.  In  all  cases  where  the  actual  owner  is  a  non-resident  alien 
individual  and  the  record  owner  is  a  person  in  the  United  States,  the 
record  owner  will  be  considered  for  tax  purposes  to  have  the  receipt, 
custody,  control  and  disposal  of  the  dividend  income  and  will  be  required 
to  make  return  for  the  actual  owner,  regardless  of  the  amount  of  the 
income,  and  to  pay  any  surtax  found  by  such  return  to  be  due.  (Art.  405.) 

Verification  of  returns. — All  income  tax  returns  must  be  verified  under 
oath  or  affirmation.  Persons  in  the  naval  or  military  service  of  the  United 
States  may  verify  their  returns  before  any  official  authorized  to  adminis- 
ter oaths  for  the  purposes  of  those  services.  Income  tax  returns  executed 
abroad  may  be  attested  free  of  charge  before  United  States  consular  offi- 
cers. Where  a  foreign  notary  or  other  official  having  no  seal  shall  act 
as  attesting  officer,  the  authority  of  such  attesting  officer  should  be  certified 


324  TAX   ON   PERSONAL  INCOMES  §  369 

to  by  some  judicial  official  or  other  proper  officer  having  knowledge  of  the 
appointment  and  official  character  of  the  attesting  officer.     (Art.  406.) 

Who  must  make  return:  partnerships. 

SEC.  368.  Partnership  returns.  Every  partnership  shall  make 
a  return  for  each  taxable  year,  stating  specifically  the  items  of  its 
gross  income  and  the  deductions  allowed  by  this  article,  and  shall 
include  in  the  return  the  names  and  addresses  of  the  individuals 
who  would  be  entitled  to  share  in  the  net  income  if  distributed 
and  the  amount  of  the  distributive  share  of  each  individual.  The 
return  shall  be  sworn  to  by  any  one  of  the  partners. 

(Source:  Fed.  Rev.  Act  1918,  §  224.) 

Partnership  returns. — Every  partnership  must  make  a  return  of  income, 
regardless  of  the  amount  of  its  net  income.  The  return  shall  be  on  form 
1065  (revised)  and  shall  be  sworn  to  by  one  of  the  partners.  Such  re- 
turn shall  be  made  for  the  taxable  year  of  the  partnership,  that  is,  for 
its  annual  accounting  period  (fiscal  year  or  calendar  year  as  the  case 
may  be),  irrespective  of  the  taxable  years  of  the  partners.  See  section 
218  of  the  statute  and  articles  321-327.  If  the  partnership  makes  any 
change  in  its  accounting  period,  it  shall  make  its  return  in  accordance  with 
the  provisions  of  section  226  and  article  431.  (Art.  411.) 

Who  must  make  return:  fiduciary. 

SEC.  369.  Fiduciary  returns.  Every  fiduciary  (except  receivers 
appointed  by  authority  of  law  in  possession  of  part  only  of  the 
property  of  a  taxpayer)  shall  make  under  oath  a  return  for  the 
taxpayer  for  whom  he  acts,  first,  if  the  net  income  of  such  taxpayer 
is  one  thousand  dollars  or  over  if  single,  or  if  married  and  not 
living  with  husband  or  wife,  or  two  thousand  dollars  or  over  if 
married  and  living  with  husband  or  wife,  or  second,  if  the  net 
income  of  such  taxpayer,  if  an  estate  or  trust,  is  one  thousand  dol- 
lars or  over  or  if  any  beneficiary  is  a  taxpayer  other  than  a  resident 
of  the  state,  which  return  shall  state  specifically  the  items  of  the 
gross  income  and  the  deductions,  exemptions  and  credits  allowed 
by  this  article.  Under  such  regulations  as  the  comptroller  may 
prescribe,  a  return  made  by  one  of  two  or  more  joint  fiduciaries 
and  filed  in  the  office  of  the  comptroller  or  collector  in  the  district 
where  such  fiduciary  resides  shall  be  a  sufficient  compliance  with 
the  above  requirement.  The  fiduciary  shall  make  oath  that  he  has 


§  369  N.  Y.  ACT  AND  U.  S.  REGULATIONS  325 

sufficient  knowledge  of  the  affairs  of  such  individual,  estate  or  trust 
to  enable  him  to  make  the  return,  and  that  the  same  is,  to  the  best 
of  his  knowledge  and  belief,  true  and  correct. 

Fiduciaries  required  to  make  returns  under  this  article  shall  be 
subject  to  all  the  provisions  of  this  article  which  apply  to  taxpayers. 

(Source:  Fed.  Rev.  Act  1918,  §  225.     Portions  in  italics  new.) 
See  chapter  on  Trusts  and  Estates,  supra. 

(Note:  See  Chapters  XXVI  and  XXVIII,  supra.) 

Fiduciary  returns. — Every  fiduciary,  or  at  least  one  of  joint  fiduciaries, 
must  make  a  return  of  income  (a)  for  the  individual  whose  income  is  in 
his  charge,  if  the  net  income  of  such  individual  is  $2,000  or  over  if  mar- 
ried and  living  with  husband  or  wife  or  is  $1,000  or  over  in  other  cases, 
or  (&)  for  the  estate  or  trust  for  which  he  acts,  if  the  net  income  of  such 
estate  or  trust  is  $1,000  or  over  or  if  any  beneficiary  of  such  estate  or  trust 
is  a  non-resident  alien.  *  *  *  In  such  a  case  the  fiduciary  shall  include 
in  the  return  a  statement  of  each  beneficiary's  distributive  share  of  the 
net  income,  whether  or  not  distributed  before  the  close  of  the  taxable  year 
for  which  the  return  is  made.  See  section  219  of  the  statute  and  articles 
341-346.  If  the  net  income  of  a  decedent  from  the  beginning  of  the  tax- 
able year  to  the  date  of  his  death  was  $1,000,  if  unmarried,  or  $2,000, 
if  married,  the  executor  or  administrator  shall  make  a  return  for  such 
decedent.  (Art.  421.) 

And  the  said  return  shall  be  signed  and  sworn  to  by  the  fiduciary,  if  an 
individual,  making  same,  and  his  full  address  must  be  stated.  If  the 
fiduciary  is  an  organization,  the  return  shall  be  signed  and  sworn  to  by 
the  president,  secretary,  or  treasurer  of  said  organization.  (Art.  73,  Reg. 
33,  Jan.  5,  1914.) 

Return  by  guardian  or  committee. — A  fiduciary  acting  as  the  guardian 
of  a  minor  having  a  net  income  of  $1,000  or  $2,000,  according  to  the 
marital  status  of  such  person,  must  make  a  return  for  such  minor  and 
pay  the  tax,  unless  such  minor  himself  makes  a  return  or  causes  it  to  be 
made.  A  fiduciary  acting  as  the  committee  of  an  insane  person  having  an 
income  of  $1,000  or  $2,000,  according  to  the  marital  status  of  such  per- 
son, must  make  a  return  for  such  incompetent  and  pay  the  tax.  (Art. 
422.) 

Returns  where  two  trusts. — In  the  case  of  two  or  more  trusts  the  in- 
come of  which  is  taxable  to  the  beneficiaries,  which  were  created  by  the 
same  person  and  are  in  charge  of  the  same  trustee,  the  trustee  shall  make 
a  single  return  for  all  such  trusts,  notwithstanding  that  they  may  arise 
from  different  instruments.  When,  however,  a  trustee  holds  trusts 
created  by  different  persons  for  the  benefit  of  the  same  beneficiary,  he 
shall  make  a  return  for  each  trust  separately.  (Art.  423.) 

Fiduciaries  acting  for  minors  or  incompetent  persons  are  permitted 
to  take  the  personal  exemption  as  to  income  derived  from  property  of 


326  TAX   ON   PERSONAL  INCOMES  §  370 

which  they  have  charge  in  favor  of  each  ward  or  beneficiary.  (Art.  14,  If  151, 
Reg.  33,  Rev.,  Jan.  2,  1918.) 

In  all  cases  where  fiduciaries  act  for  minors  or  other  incompetents  they 
are  held,  for  the  purpose  of  the  income  tax,  to  be  acting  as  the  agents 
of  such  minors  or  other  incompetents  and  must  pay  all  tax  (normal  and 
additional)  chargeable  on  such  income  in  their  hands  as  though  the 
persons  for  whom  they  act  were  acting  for  themselves.  (T.  D.  2231, 
July  26,  1915.) 

When  the  required  return  has  not  been  made  by  a  person  acting  as 
guardian,  agent  of  a  nonresident  alien,  or  by  one  acting  in  any  other 
capacity  in  which  the  law  makes  it  a  duty  for  him  to  represent  the  in- 
dividual, notice  of  failure  to  make  such  return  will  be  served  upon  such 
guardian  or  agent. 

The  person  upon  whom  such  notice  is  served  may,  however,  when  the 
facts  warrant,  file  evidence  with  the  collector  showing  that  the  individual 
for  whom  he  acts  did  not  receive  an  income  subject  to  tax  during  the 
year,  or  that  the  said  guardian  or  agent  has  filed  the  return  with  some 
other  collector.  (Art.  18,  Reg.  33,  Jan.  5,  1914.) 

Return  by  receiver.— -A  receiver  who  stands  in  the  stead  of  an  in- 
dividual or  corporation  must  render  a  return  ot  income  and  pay  the  tax 
for  his  trust,  but  a  receiver  of  only  part  of  the  property  of  an  individual 
*  *  *  need  not.  *  *  *  A  receiver  in  charge  of  the  business  of  a 
partnership  shall  render  a  return.  'A  receiver  of  the  rents  and  profits 
appointed  to  hold  and  operate  a  mortgaged  parcel  of  real  estate,  but 
not  in  control  of  all  the  property  or  business  of  the  mortgagor,  and  a  re- 
ceiver in  partition  proceedings,  are  not  required  to  render  returns  of  in- 
come. In  general,  statutory  receivers  and  common  law  receivers  of  all  the 
property  or  business  of  an  individual  or  corporation  must  make  returns. 
(Art.  424.) 

Return  for  nonresident  alien  beneficiary. — Where  a  citizen  or  resident 
fiduciary  has  the  distribution  of  trust  income  for  which  there  is  a  non- 
resident alien  beneficiary,  the  fiduciary  must  make  a  return  for  such  non- 
resident alien  and  pay  the  tax.  If  there  are  two  or  more  beneficiaries, 
the  fiduciary  shall  render  a  return  for  each  nonresident  alien  beneficiary. 
(Art.  425.) 

Returns  when  accounting  period  changed. 

SEC.  370.  Eeturns  when  accounting  period  changed.  If  a  tax- 
payer, with  the  approval  of  the  comptroller,  changes  the  basis  of 
computing  net  income  from  fiscal  year  to  calendar  year,  a  separate 
return  shall  be  made  for  the  period  between  the  close  of  the  last 
fiscal  year  for  which  return  shall  be  made  for  the  period  between 
the  close  of  the  last  fiscal  year  for  which  return  was  made  and  the 
following  December  thirty-first.  If  the  change  is  made  from  cal- 


§  371  N.  Y.  ACT  AND  U.  S.  REGULATIONS  327 

enclar  year  to  fiscal  year,  a  separate  return  shall  be  made  for  the 
period  between  the  close  of  the  last  calendar  year  for  which  return 
was  made  and  the  date  designated  as  the  close  of  the  last  fiscal  year. 
If  the  change  is  from  one  fiscal  year  to  another  fiscal  year,  a  sep- 
arate return  shall  be  made  for  the  period  between  the  close  of  the 
former  fiscal  year  and  the  date  designated  as  the  close  of  the  new 
fiscal  year.  If  a  taxpayer  making  his  first  return  for  income  tax 
keeps  his  accounts  on  the  basis  of  a  fiscal  year,  he  shall  make  a 
separate  return  for  the  period  between  the  beginning  of  a  calendar 
year  in  which  such  fiscal  year  ends  and  the  end  of  such  fiscal  year. 

In  all  of  the  above  cases  the  net  income  shall  be  computed  on  the 
basis  of  such  period  for  which  separate  return  is  made,  and  the  tax 
shall  be  paid  thereon  at  the  rate  for  the  calendar  year  in  which 
such  period  is  included ;  and  the  exemptions  allowed  in  this  article 
shall  be  reduced  respectively  to  amounts  which  bear  the  same  ratio 
to  the  full  exemptions  provided  for  as  the  number  of  months  in 
such  period  bears  to  twelve  months. 

(Source:  Fed.  Rev.  Act  1918,  §  226;  see  also  under  §  358-2,  supra.) 

Returns:  where  and  when  filed. 

SEC.  371.  Time  and  place  of  filing  returns.  Eeturns  shall  be 
made  to  the  comptroller  on  or  before  the  fifteenth  day  of  March  in 
each  year  of  the  taxpayer's  net  income  for  his  last  preceding  tax- 
able year.  The  comptroller  may  grant  a  reasonable  extension  of 
time  for  filing  returns  whenever  in  its  judgment  good  cause  exists 
and  shall  keep  a  record  of  every  such  extension  and  the  reason 
therefor.  Except  in  the  case  of  taxpayers  who  are  abroad,  no  such 
extension  shall  be  granted  for  more  than  six  months.  Such  returns 
shall,  so  far  as  may  be,  set  forth  the  same  or  similar  items  called 
for  in  the  blank  forms  of  return  prescribed  by  the  United  States 
commissioner  of  internal  revenue  for  the  enforcement  of  the  act 
of  congress  known  as  the  revenue  act  of  nineteen  hundred  and 
eighteen,  together  with  such  other  facts  as  the  comptroller  may 
deem  necessary  for  the  proper  enforcement  of  this  article.  There 
shall  be  annexed  to  such  return  the  affidavit  or  affirmation  of  the 
person  making  the  return,  to  the  effect  that  the  statements  con- 


328  TAX  ON   PERSONAL  INCOMES  §  371 

tained  therein  are  true.  Blank  forms  of  return  shall  be  furnished 
by  the  comptroller  upon  application,  but  failure  to  secure  the  form 
shall  not  relieve  any  taxpayer  from  the  obligation  of  making  any 
return  herein  required. 

(Source:  New,  but  see  Fed.  Rev.  Act  1918,  §  227.) 

Time  for  filing  return  upon  death  or  termination  of  trust— As  soon 
as  possible  after  his  appointment  and  qualification,  without  waiting  for 
the  close  of  the  taxable  year,  an  executor  or  administrator  shall  file  a  re- 
turn of  income  for  the  decedent.  Upon  the  completion  of  the  administra- 
tion of  an  estate  and  final  accounting  an  executor  or  administrator  shall 
file  a  return  of  income  of  the  estate  for  the  portion  of  the  taxable  year 
in  which  the  administration  was  closed,  attaching  to  the  return  a  certi- 
fied copy  of  the  order  for  his  discharge.  An  ancillary  administrator  need 
make  no  separate  return  if  the  domiciliary  administrator  includes  in  his 
return  the  entire  income  of  the  estate.  Similarly,  upon  the  termination 
of  any  other  trust  the  trustee  shall  make  a  return  without  waiting  for  the 
close  of  the  taxable  year.  In  any  such  case  the  requirements  with  respect 
to  the  payment  of  the  tax  are  the  same  as  if  the  return  were  for  a  full 
taxable  year  closing  at  the  end  of  the  month  during  which  the  decedent 
dies  or  the  estate  is  settled  or  the  trust  is  terminated,  as  the  case  may 
be.  The  payment  of  the  tax  before  the  end  of  the  taxable  year  in  such 
circumstances  does  not  relieve  the  taxpayer  from  liability  for  any  addi- 
tional tax  which  might  subsequently  be  imposed  upon  income  of  the 
taxable  year.  (Art.  442.) 

Last  due  date. — The  last  due  date  is  the  last  day  upon  which  a  return 
is  required  to  be  filed  in  accordance  with  the  provisions  of  the  statute 
or  the  last  day  of  the  period  covered  by  an  extension  of  time  granted  by 
the  collector  or  Commissioner.  When  the  last  due  date  falls  on  Sunday 
or  a  legal  holiday,  the  last  due  date  for  filing  returns  will  be  the  day 
following  such  Sunday  or  legal  holiday.  If  placed  in  the  mails  the  re- 
turn should  be  posted  in  ample  time  to  reach  the  collector's  office,  under 
ordinary  handling  of  the  mails,  on  or  before  the  date  on  which  the  re- 
turn is  required  to  be  filed.  If  a  return  is  made  and  placed  in  the  mails 
in  due  course,  properly  addressed  and  postage  paid,  in  ample  time  to 
reach  the  office  of  the  collector  on  or  before  the  last  due  date,  no  penalty 
will  attach  should  the  return  not  be  actually  received  by  such  officer  until 
subsequently  to  that  date.  Where  a  question  may  be  raised  as  to  whether 
or  not  the  return  was  posted  in  ample  time  to  reach  the  collector's  office 
on  or  before  the  due  date,  the  envelope  in  which  the  return  was  transmitted 
will  be  preserved  by  the  collector  and  forwarded  to  the  Commissioner  with 
the  return.  (Art.  447.) 

Interest  runs  on  amount  of  installment  during  period  of  extension 
availed  of. — "In  any  case  in  which  the  time  for  the  payment  of  any  in- 
stallment is  at  the  request  of  the  taxpayer  thus  postponed,  there  shall  be 
added  as  part  of  such  installment  interest  thereon  at  the  rate  of  %  of  1 


§  374  N.  Y.  ACT  AND  U.  S.  REGULATIONS  329 

per  centum  per  month  from  the  time  it  would  have  been  due  if  no  exten- 
sion had  been  granted,  until  paid." 

For  discussion  of  administrative  features  see  Part  III  of  this 

volume. 
Tax  districts. 

SEC.  372.  Administration  of  income  tax  law.  The  comptroller 
shall  administer  and  enforce  the  tax  herein  imposed  for  which  pur- 
pose he  may  divide  the  state  into  districts  in  each  of  which  a  branch 
office  of  the  comptroller  may  be  maintained;  provided  that  in  no 
cases  shall  a  county  be  divided  in  forming  a  district. 

(Source:  New.) 

Powers  of  comptroller. 

SEC.  373.  Powers  of  comptroller.  If  in  the  opinion  of  the  comp- 
troller any  return  of  a  taxpayer  is  in  any  essential  respect  incor- 
rect he  shall  have  power  to  revise  such  return,  or  if  any  taxpayer 
fails  to  make  return  as  herein  required,  the  comptroller  is  author- 
ized to  make  an  estimate  of  the  taxable  income  of  such  taxpayer 
from  any  information  in  his  possession,  and  to  audit  and  state  an 
account  according  to  such  revised  return  or  the  estimate  so  made 
by  him  for  the  taxes,  penalties  and  interest  due  the  state  from  such 
taxpayer.  The  comptroller  shall  also  have  power  to  examine  or 
cause  to  have  examined,  in  case  of  failure  to  report  the  books  and 
records  of  any  such  taxpayer,  and  may  take  testimony  and  require 
proof  material  for  his  information. 

(Source:  New.    See  Part  III,  supra.) 

Revision. 

SEC.  374.  Revision  and  readjustment  of  accounts  by  comptroller. 
If  an  application  for  revision  be  filed  with  the  comptroller  by  a 
taxpayer  within  one  year  from  the  time  of  the  filing  of  the  return, 
or  if  the  tax  of  such  taxpayer  shall  have  been  recomputed,  then 
from  the  time  of  such  recomputation,  the  comptroller  shall  grant 
a  hearing  thereon  and  if  it  shall  be  made  to  appear,  upon  any  such 
hearing  by  evidence  submitted  to  him  or  otherwise,  that  any  such 
computation  includes  taxes  or  other  charges  which  could  not  have 


330  TAX   ON   PERSONAL  INCOMES  §  376 

been  lawfully  demanded,  or  that  payment  has  been  illegally  made 
or  exacted  of  any  such  amount  so  computed,  the  comptroller  shall 
resettle  the  same  according  to  law  and  the  facts,  and  adjust  the 
computation  of  taxes  accordingly,  and  shall  send  notice  of  his 
determination  thereon  to  the  taxpayer. 

(Source:  New,  lut  see  Part  III,  supra.) 
Writ  of  Certiorari. 

SEC.  375.  Eeview  of  determination  of  comptroller  by  certiorari 
and  regulations  as  to  writ.  The  determination  of  the  comptroller 
upon  any  application  made  to  him  by  any  taxpayer  for  revision 
and  resettlement  of  any  computation  of  tax,  as  prescribed  by  this 
article,  may  be  reviewed  in  the  manner  prescribed  by  and  subject 
to  the  provisions  of  section  one  hundred  and  ninety-nine  of  this 
chapter.  No  certiorari  to  review  any  statement  of  a  computation 
or  any  determination  by  the  comptroller  under  this  article  shall  be 
granted  unless  notice  of  application  therefor  is  made  within  thirty 
days  after  the  service  of  the  notice  of  such  determination.  Eight 
days'  notice  shall  be  given  to  the  comptroller  of  the  application  for 
such  writ.  Before  making  the  application  an  undertaking  must  be 
filed  with  him,  in  such  amount  and  with  such  sureties  as  a  justice 
of  the  supreme  court  shall  approve,  to  the  effect  that  if  such  writ 
is  dismissed  or  the  determination  of  the  comptroller  affirmed,  the 
applicant  for  the  writ  will  pay  all  costs  and  charges  which  may 
accrue  against  him  in  the  prosecution  of  the  writ,  including  costs 
of  all  appeals. 

(Source:  New.   See  Part  III,  supra.) 

False  returns — Failure  to  make  returns — Penalties. 

SEC.  376.  Penalties.  1.  Any  person  required  by  this  article  to 
make,  render,  sign  or  verify  any  return,  who  fails  to  make,  render, 
sign  or  verify  such  return  within  the  time  required  by  or  under  a 
provision  of  law,  or  who  makes  any  false  or  fraudulent  return  or 
statement,  with  intent  to  evade  any  tax  imposed  by  this  article, 
shall  be  guilty  of  a  misdemeanor  and  shall,  upon  conviction,  be 
fined  not  to  exceed  one  thousand  dollars,  or  be  imprisoned  not  to 
exceed  one  year,  or  both,  at  the  discretion  of  the  court. 


§  37fi  N.  Y.  ACT  AND  U.  S.  REGULATIONS  331 

2.  If  any  such  person  shall  fail  or  refuse  to  make  a  return  of 
income  at  the  time  or  times  hereinbefore  specified,  but  shall  vol- 
untarily make  a  correct  return  of  income  within  sixty  days  there- 
after, there  shall  be  added  to  his  tax  five  per  centum  of  the  amount 
otherwise  due,  but  such  additional  amount  shall  in  no  case  be  less 
than  two  dollars. 

3.  If  any  person  liable  to  taxation  under  this  article  fails  to  make 
a  return  as  herein  required,  the  amount  of  income  of  such  person 
discovered  to  be  taxable  shall  be  subject  to  twice  the  ordinary  rate 
of  taxation.     If  any  person  liable  to  taxation  under  this  article 
makes  any  false  or  fraudulent  return  or  statement,  with  intent  to 
evade  any  tax  imposed  by  this  article,  and  an  additional  amount  is 
discovered  to  be  taxable,  such  additional  amount  shall  be  subject 
to  twice  the  ordinary  rate  of  taxation.    Such  tax  shall  be  collected 
at  such  time  and  in  such  manner  as  may  be  designated  by  the 
comptroller.    This  penalty  shall  be  additional  to  all  other  penalties 
in  this  or  any  other  section  provided. 

(Source:  New,  but  compare  Fed.  Rev.  Act  1918,  §  253.) 

The  specific  penalty  will  not  be  asserted  under  certain  circum- 
stances.— Liability  to  specific  penalty  attaches  upon  all  delinquent  re- 
turns and  is  recoverable  by  suit.  By  Section  3214  R.  S.  the  Commissioner 
of  Internal  Revenue  may  or  may  not  institute  suit.  It  has  been  decided 
not  to  institute  suit  nor  to  assert  specific  penalty  in  certain  cases.  The 
assertion  of  specific  penalty  does  not  depend  upon  the  fact  of  whether  or  not 
the  [25]%  addition  to  tax  has  been  assessed.  In  some  cases  where  the 
the  [25]%  addition  to  tax  must  be  assessed  because  the  return  was  filed 
after  notice  from  the  collector,  the  specific  penalty  will  not  be  asserted.  It 
will  not  be  asserted,  regardless  of  whether  the  [25]%  addition  to  tax  has 
been  assessed,  in  cases  falling  under  any  of  the  following  designations: 

1.  Extension  granted.     Where  a  return   is  filed  within  the  thirty-day 
period  of  extension  granted  by  the  collector  or  within  a  further  period 
of  extension  granted  by  the  Commissioner   of  Internal  Revenue,  as  pro- 
vided by  Section  14   (c)  of  the  Act  of  September  8,  1916. 

2.  Return    on   time.      Specific    penalty   will    not    be   asserted    upon    an 
amended  return  provided   the   original   return   was  filed  within   the   pre- 
scribed time. 

3.  Mailed  in  time.     Where  an  affidavit  is  filed  satisfactorily  establish- 
ing that  the  return  was  placed  in  the  mails  in  ample  time  to  reach  the 
Collector's  office  in  ordinary  course  of  mails  before  the  close  of  business 
on  the  final  day  for  filing. 

4.  Tentative  return.     Where  an  informal  return  was  filed  within  the 


332  TAX   ON   PERSONAL  INCOMES  §  376 

time  prescribed.  The  return  of  a  parent  company  including  therein  the 
income  of  a  subsidiary  company  will  be  accepted  as  a  tentative  return 
of  the  subsidiary  company,  if  the  fact  is  stated  that  the  tentative  return 
includes  the  income  of  the  subsidiary. 

5.  Filed  in  wrong  district.     Where  the  return  was  filed  in  some  other 
collection  district  within  the  prescribed  time. 

6.  Net  income  under   $3,000.     Where  it  develops  that  the  net  income 
of  an  individual  for   1913,   1914,   1915  or   1916  was  less  than  $3,000,  or 
under   the  Act  of   October   3,    1917,   for    1917,   etc.,   less  than   $1,000   or 
$2,000. 

7.  Erroneous  information.     Where  the  delinquency  is  alleged  to  be  due 
to  erroneous  or  misleading  information  given  by  officials  or  employees  of 
the  Internal  Eevenue  Service  and  there  is  no  evidence  in  conflict  there- 
with. 

8.  Organization  incomplete.     Where  it  is  established  that  the  organiza- 
tion of  a  corporation,  joint-stock  company  or  association,  or  insurance  com- 
pany was  not  completed  until  after  the  expiration  of  the  period  for  which 
the  return  should  have  been  filed. 

9.  Death.     Where  by  reason  of  the  death  of  an  individual  his  return 
for  the  year  or  portion  of  the  year  prior  to  his  death  is  not  filed  within 
the  time  prescribed.    The  death  of  a  delinquent  abates  liability  to  specific 
penalty.     An  administrator  or  executor  is  charged  with  the  duty  of  ren- 
dering a  return  for  the  decedent,  and  if  he  is  appointed  in  ample  time  to 
make  the  return  prior   to  March    1st  and  fails  to  do  so,   he   should  be 
charged  as  delinquent  and  the  specific  penalty  should  be  asserted  against 
him.     The   administrator   or   executor   will  not  be  relieved   from   specific 
penalty  unless  the  return  is  made  within  a  reasonable  time  after  his  ap- 
pointment. 

10.  Severe  illness  or  unavoidable  absence.     Where  it  is  clearly  estab- 
lished that  the  delinquency  in  the  filing  of  a  return  of  an  individual  or  of 
a  corporation  within  the  time  prescribed  was  due  to  severe  illness  of  the 
individual  or  of  an  officer  of  a  corporation  whose  duty  it  was  to  prepare 
or  sign  the  return,  or  to  unavoidable  absence  from  place  of  business  or 
place  of  abode. 

11.  Absence  from  the  United  States.     Where  it  appears  that  the  filing 
of  a  return  within  the  time  prescribed  was  rendered  impossible  by  reason 
of  absence  from  the  United  States.     Delinquency  beyond  the  period  of  ex- 
tension which  may  be  granted  by  the  Commissioner  of  Internal  Revenue 
will  not  be  excused  under  this  heading. 

12.  Military  or  naval  service  of  United  States.     Where  delinquency  of 
an  individual  was  occasioned  by  service  in  the  military  or  naval  forces 
of  the  United  States. 

13.  Not  organized  for  profit.     Comprehends  numerous   small   corpora- 
tions not  organized  primarily  for  profit,  such  as  local  telephone  companies, 
co-operative  purchasing  societies,  etc.,  concerning  whose  liability  under  the 
law  to  make  a  return  there  may  have  been  a  reasonable  doubt. 

14.  Inactive  corporations.    Those  which  transacted  no  business  and  had 
no  income  during  the  return  year. 


§  377  N.  Y.  ACT  AND  U.  S.  REGULATIONS  333 

15.  Fiscal  year.     Corporations  which  have  established  a  fiscal  year  in 
the  manner  prescribed  by  law  which  file  a  return  on  or  before  the  first  day 
of  the  third  month  following  the  close  of  the  fiscal  year. 

16.  Assigned.      Where   corporations   have   made   an   assignment   on   ac- 
count of  insolvency  and  do  not  intend  again  to  engage  in  business. 

17.  Insolvent.     Where  the  assets  of  a  corporation   are  insufficient  for 
the  payment  of  its  debts  and  the  corporation  has  ceased  to  do  business. 

18.  Charter  forfeited.     Where,  prior  to  the  date  when  the  return  was 
due,  the  charter  of  a  corporation  is  forfeited  on  account  of  noncompliance 
with  state  laws.     It  must  be  clear,  however,  that  business  in  the  name 
of  the  corporation  was  suspended  at  the  time  of  such  forfeiture.     If  busi- 
ness was  continued  under  the  same  name,  the  concern  will  be  held  to  be 
an  association  and  the  same  liabilities  will  attach  as  if  the  charter  had 
not  been  forfeited. 

19.  Defunct.     Where  corporations  are  out  of  business,  have  no  assets, 
maintain  no  organization,  and  the  purpose  for  which  organized  has  been 
abandoned. 

20.  Dissolved.     Where  all  the  assets  of  a  corporation  have  been  dis- 
tributed. 

21.  Sale.     Where    corporations   have   disposed   of   all   their   assets   and 
property  by  sale  to  other  corporations,  firms,  or  individuals  and  business 
is  not  longer  carried  on  under  their  charters. 

22.  Consolidated,   merged   or   succeeded.     Where   corporations   have  ter- 
minated their  existence  as  represented  by  these  terms  and  it  appears  that 
no  assets  or  property  remain  in  the  name  of  the  retiring  corporation. 

23.  No  assets.     Includes  all  corporations  having  no  assets  from  which 
to    submit   an   offer    in    compromise.      (L.    Mimeograph    Letter   No.    1675 
to  Collectors,  November  3,  1917. 

Tax  payable  at  time  of  filing  return. 

SEC.  377.  When  payable.  1.  Each  taxpayer  shall,  at  the  time 
of  filing  his  return,  pay  to  the  comptroller  the  amount  of  tax  pay- 
able hereunder  as  the  same  shall  appear  from  the  face  of  the  return. 
If  the  time  for  filing  the  return  shall  be  extended,  he  shall  pay  in 
addition  interest  thereon  at  the  rate  of  six  per  centum  per  annum 
from  the  time  when  the  return  was  originally  required  to  be  filed 
to  the  time  of  payment. 

2.  As  soon  as  practicable  after  the  return  is  filed,  the  comptroller 
shall  examine  it  and  compute  the  tax. 

3.  If  the  amount  of  tax  as  computed  shall  be  greater  than  the 
amount  theretofore  paid,  the  excess  shall  be  paid  by  the  taxpayer 
to  the  comptroller  within  thirty  days  after  the  amount  of  the  tax 
as  computed  shall  be  mailed  by  the  comptroller. 


334  TAX  ON   PERSONAL  INCOMES  §  380 

4.  If  the  amount  of  tax  as  computed  shall  be  less  than  the 
amount  theretofore  paid,  the  excess  shall  be  refunded  by  the  comp- 
troller out  of  the  proceeds  of  the  tax  retained  by  him  as  provided 
in  this  article. 

(Source:  New.) 

Notice  of  assessment. 

SEC.  378.  Notice  of  assessment.  Notice  of  tax  assessment  shall 
be  sent  by  mail  to  the  post  office  address  given  in  the  report,  and 
the  record  that  such  notice  has  been  sent  shall  be  presumptive  evi- 
dence of  the  giving  of  the  notice  and  such  record  shall  be  pre- 
served by  the  comptroller. 

(Source:  New.) 

Collection  of  taxes;  penalties  and  interest. 

SEC.  379.  Collection  of  taxes;  penalties  and  interest.  1.  The 
comptroller  is  authorized  at  his  discretion  to  designate  agents  for 
the  purpose  of  collecting  income  taxes  and  shall  require  from  them 
reasonable  bond. 

2.  If  the  tax  imposed  by  this  article  or  any  part  of  such  tax  be 
not  paid  at  the  time  when  required  to  be  paid  under  the  provisions 
of  this  article  or  in  the  case  of  additional  taxes,  at  the  time  desig- 
nated by  the  comptroller,  the  taxpayer  liable  to  pay  such  tax  shall 
pay  to  the  comptroller,  in  addition  to  the  amount  of  such  tax,  or 
part  thereof,  five  per  centum  of  said  amount,  plus  one  per  centum 
for  each  month,  or  fraction  of  a  month,  the  tax,  or  part  thereof, 
remains  unpaid. 

(Sourse:  New.    See  Part  III,  supra.) 

Warrant  for  collection  of  taxes. 

SEC.  380.  Warrant  for  the  collection  of  taxes.  If  any  tax  im- 
posed by  this  article  or  any  portion  of  such  tax  be  not  paid  within 
sixty  days  after  the  same  becomes  due,  the  comptroller  shall  issue 
a  warrant  under  his  hand  and  official  seal  directed  to  the  sheriff  of 
any  county  of  the  state  commanding  him  to  levy  upon  and  sell  the 
real  and  personal  property  of  the  person  owning x  the  same,  found 

1  So  in  the  original ;  probably  intended  for  "owing." 


§  381  N.  Y.  ACT  AND  U.  S.  REGULATIONS  335 

within  his  county,  for  the  payment  of  the  amount  thereof,  with  the 
added  penalties,  interest  and  the  cost  of  executing  the  warrant,  and 
to  return  such  warrant  to  the  comptroller  and  pay  to  him  the 
money  collected  by  virtue  thereof  by  a  time  to  be  therein  specified, 
not  less  than  sixty  days  from  the  date  of  the  warrant.  The  sheriff 
shall  within  five  days  after  the  receipt  of  the  warrant,  file  with  the 
clerk  of  his  county  a  copy  thereof,  and  thereupon  the  clerk  shall 
enter  in  the  judgment  docket,  in  the  column  for  judgment  debtors, 
the  name  of  the  taxpayer  mentioned  in  the  warrant,  and  in  appro- 
priate columns  the  amount  of  the  tax  or  portion  thereof  and  pen- 
alties for  which  the  warrant  is  issued  and  the  date  when  such  copy 
is  filed,  and  thereupon  the  amount  of  such  warrant  so  docketed  shall 
become  a  lien  upon  the  title  to  and  interest  in  real  property  or 
chattels  real  of  the  person  against  whom  it  is  issued  in  the  same 
manner  as  a  judgment  duly  docketed  in  the  office  of  such  clerk. 
The  said  sheriff  shall  thereupon  proceed  upon  the  same  in  all  re- 
spects, with  like  effect,  and  in  the  same  manner  prescribed  by  law 
in  respect  to  executions  issued  against  property  upon  judgments  of 
a  court  of  record,  and  shall  be  entitled  to  the  same  fees  for  his 
services  in  executing  the  warrant,  to  be  collected  in  the  same  man- 
ner. In  the  discretion  of  the  comptroller  a  warrant  of  like  terms, 
force  and  effect  may  be  issued  and  directed  to  any  agent  authorized 
to  collect  income  taxes,  and  in  the  execution  thereof  such  agent 
shall  have  all  the  powers  conferred  by  law  upon  sheriffs,  but  shall 
be  entitled  to  no  fee  or  compensation  in  excess  of  actual  expenses 
paid  in  the  performance  of  such  duty.  If  a  warrant  be  returned 
not  satisfied  in  full,  the  comptroller  shall  have  the  same  remedies 
to  enforce  the  claim  for  taxes  against  the  taxpayer  as  if  the  people 
of  the  state  had  recovered  judgment  against  the  taxpayer  for  the 
amount  of  the  tax. 

(Source:  New.    See  Part  III,  supra.) 

Attorney-General  may  sure. 

SEC.  381.    Action  for  recovery  of  taxes.    Action  may  be  brought 
at  any  time  by  the  attorney-general  of  the  state  at  the  instance  of 


336  TAX   ON   PERSONAL   INCOMES  §  383 

the  comptroller,  in  the  name  of  the  state  to  recover  the  amount  of 
any  taxes,  penalties  and  interest  due  under  this  article. 
(Source:  New.   See  Part  III,  supra.} 

How  proceeds  of  tax  to  be  distributed. 

SEC.  382.  Distribution  of  the  income  tax.  Of  the  revenue  col- 
lected under  this  article  the  comptroller  shall  retain  in  his  hands 
sufficient  to  provide  at  all  times  a  fund  in  his  hands  in  the  sum  of 
two  hundred  and  fifty  thousand  dollars  out  of  which  he  shall  pay 
any  refunds  to  which  taxpayers  shall  be  entitled  under  the  pro- 
visions of  this  article.  Of  the  remainder,  fifty  per  centum  shall  be 
paid  into  the  state  treasury  to  the  credit  of  the  general  fund.  The 
remaining  fifty  per  centum  thereof  shall,  not  later  than  the  first 
day  of  July,  and  in  case  of  moneys  subsequently  collected  at  least 
quarterly  thereafter,  be  distributed  and  paid  to  the  treasurers  of 
fhe  several  counties  of  the  state,  in  the  proportion  that  the  assessed 
valuation  of  the  real  property  of  each  county  bears  to  the  aggregate 
assessed  valuation  of  the  real  property  of  the  state.  As  to  any 
county  included  in  the  city  of  New  York  such  payment  shall  be 
made  to  the  receiver  of  taxes  in  such  city  and  be  paid  into  the  gen- 
eral fund  for  the  reduction  of  taxation  of  the  city  of  New  York. 
The  county  treasurer  shall  apportion  the  amount  so  received  among 
the  several  towns  and  cities  within  the  county  in  proportion  that 
the  assessed  valuation  of  the  real  property  of  each  town  or  city 
bears  to  the  aggregate  assessed  valuation  of  the  real  property  of 
the  county,  and  shall  credit  the  amount  apportioned  to  each  town 
against  the  county  tax  payable  by  it,  and  shall  pay  the  amount 
apportioned  to  each  city  to  the  chief  fiscal  officer  of  the  city  to  be 
paid  into  the  general  fund  for  city  purposes.  If  the  amount  of  the 
credit  to  a  town  exceeds  the  county  tax  from  such  town,  the  excess 
shall  be  paid  to  the  supervisor  of  the  town  and  be  by  him  credited 
to  general  town  purposes. 

(Source:  New.) 

Comptroller  to  make  regulations. 

SEC.  383.  Comptroller  to  make  regulations  and  to  collect  facts. 
The  comptroller  is  hereby  authorized  to  make  such  rules  and  reg- 


§  385  N.  Y.  ACT  AND  U.  S.  REGULATIONS  337 

ulations,  and  to  require  such  facts  and  information  to  be  reported, 
as  it  may  deem  necessary  to  enforce  the  provisions  of  this  article. 

(Source:  New.) 
Secrecy. 

SEC.  384.  Secrecy  required  of  official;  penalty  for  violation.  1. 
Except  in  accordance  with  proper  judicial  order  or  as  otherwise 
provided  by  law,  it  shall  be  unlawful  for  the  comptroller,  any  agent, 
clerk,  or  other  officer  or  employee  to  divulge  or  make  known  in  any 
manner  the  amount  of  income  or  any  particulars  set  forth  or  dis- 
closed in  any  report  or  return  required  under  this  article.  Nothing 
herein  shall  be  construed  to  prohibit  the  publication  of  statistics 
so  classified  as  to  prevent  the  identification  of  particular  reports 
or  returns  and  the  items  thereof,  or  the  inspection  by  the  attorney- 
general  or  other  legal  representatives  of  the  state  of  the  report  or 
return  of  any  taxpayer  who  shall  bring  action  to  set  aside  or  review 
the  tax  based  thereon,  or  against  whom  an  action  or  proceeding 
has  been  instituted  in  accordance  with  the  provisions  of  sections 
three  hundred  and  eighty  and  three  hundred  and  eighty-one  of  this 
chapter.  Keports  and  returns  shall  be  preserved  for  three  years 
and  thereafter  until  the  comptroller  orders  them  to  be  destroyed. 

2.  Any  offense  against  subdivision  one  of  this  section  shall  be 
punished  by  a  fine  not  exceeding  one  thousand  dollars  or  by  im- 
prisonment not  exceeding  one  year,  or  both,  at  the  discretion  of  the 
court,  and  if  the  offender  be  an  officer  or  employee  of  the  state  he 
shall  be  dismissed  from  office  and  be  incapable  of  holding  any  pub- 
lic office  in  this  state  for  a  period  of  five  years  thereafter. 

(Source:  New.  See  Fed.  Rev.  Act  1918,  §  1317  amending  §  31>67 
Rev.  Stats.) 

Contract  to  assume  tax  illegal. — Act  separable,  etc. 

SEC.  385.  Contract  to  assume  income  tax  illegal.  It  shall  be 
unlawful  for  any  person  to  agree  or  contract  directly  or  indirectly 
to  pay  or  assume  or  bear  the  burden  of  any  tax  payable  by  any 
taxpayer  under  the  provisions  of  this  article.  Any  such  contract 
or  agreement  shall  be  null  and  void  and  shall  not  be  enforced  or 
given  effect  by  any  court. 

2.  If  any  clause,  sentence,  paragraph,  or  part  of  this  act  shall 
for  any  reason  be  adjudged  by  any  court  of  competent  jurisdiction 


338  TAX    ON   PERSONAL   INCOMES  §  385 

to  be  invalid,,  such  judgment  shall  not  affect,  impair,  or  invalidate 
the  remainder  of  this  act,  but  shall  be  confined  in  its  operation  to 
the  clause,  sentence,  paragraph,  or  part  thereof  directly  involved 
in  the  controversy  in  which  such  judgment  shall  have  been  ren- 
dered. 

3.  An  assessment  on  account  of  personal  property  made  prior 
to  August  first,  nineteen  hundred  and  nineteen,  shall  be  as  valid 
and  effectual  as  if  this  act  had  not  been  passed,  and  nothing  in  this 
act  shall  be  construed  to  impair  the  obligation  to  pay  taxes  assessed 
on  account  of  personal  property  in  the  year  nineteen  hundred  and 
eighteen  or  the  year  nineteen  hundred  and  nineteen  prior  to  August 
first  whether  payable  in  that  year  or  not. 

4.  If  in  any  city  entitled  to  receive  a  portion  of  the  taxes  col- 
lected under  article  sixteen  of  the  tax  law  as  added  by  this  act  the 
budget  for  the  fiscal  year  current  on  July  first,  nineteen  hundred 
and  twenty,  shall  be  completed  prior  to  that  date,  the  board  of 
estimate  and  apportionment  or  other  board  or  body  having  the  duty 
of  preparing  the  budget  in  such  city  shall  have  the  power  subse- 
quent to  such  date  and  before  the  levy  of  the  taxes  on  account  of 
the  appropriations  made  by  such  budget  to  revise  the  estimates  of 
city  revenue  so  as  to  include  in  such  calculations  the  income  to  the 
city  from  taxes  collected  under  article  sixteen  of  the  tax  law  as 
added  by  this  act. 

5.  The  sum  of  three  hundred  thousand  dollars   ($300,000),  or 
so  much  thereof  as  may  be  needed,  is  hereby  appropriated  out  of 
any  money  in  the  treasury,  not  otherwise  appropriated,  for  the 
administration  of  article  sixteen  of  the  tax  law  as  added  by  this 
act,  but  any  position  established  or  salary  fixed  for  such  purpose 
shall  be  deemed  temporary  only  and  subject  to  the  future  action 
of  the  legislature,  but  no  new  position  shall  be  created  nor  salary 
fixed  except  on  the  unanimous  approval  of  the  Governor,  the  Chair- 
man of  the  Senate  Finance  Committee  and  the  Chairman  of  the 
Assembly  Ways  and  Means  Committee. 

6.  Except  as  otherwise  provided  herein  this  act  shall  take  effect 
immediately. 

Approved  by  Governor,  May  14,  1919. 
(Source:  New.) 


DECISIONS  339 


EXCESS  PROFITS  TAX  DECISION. 

The  People  of  the  State  of  New  York  ex  rel.  Barcalo  Manufacturing  Com- 
pany, Relator,  Appellant,  Against  Walter  H.  Knapp,  Ralph  W.  Thomas 
and  John  J.  Merrill,  as  and  Constituting  the  State  Tax  Commission 
of  the  State  of  New  York,  Respondents. 

The  People  of  the  State  of  New  York  ex  rel.  American  Broom  and  Brush 
Company,  Relator,  Appellant,  Against  Walter  H.  Knapp,  Michael 
J.  Walsh  and  John  J.  Merrill,  as  and  Constituting  the  State  Tax 
Commission  of  the  State  of  New  York,  Respondents. 

Argued  March  term,  1919. 

Decided  April  8,  1919. 

Certiorari  to  review  the  action  of  the  State  Tax  Commission  in  the 
assessment  of  taxes  against  the  above-named  corporations  under  the  pro- 
visions of  the  State  Franchise  Tax  Law  of  1917. 

Elon  R.  Brown  and  Edward  H.  Letchworth,  of  Watertown,  for  the  re- 
lators,  appellants;  Charles  D.  Newton,  Attorney-General  (C.  T.  Dawes, 
Deputy  Attorney-General,  of  counsel),  for  the  State  Tax  Commission. 

Woodward,  J. — The  questions  involved  in  this  review  relate  to  the 
construction  of  chapter  726  of  the  Laws  of  1917,  in  effect  June  4th  of 
that  year,  and  especially  section  209  of  that  act.  By  the  provisions  of 
chapter  276  of  the  Laws  of  1918,  sections  209,  211,  214  and  219-d  of  the 
original  act  were  amended,  and  it  was  provided  in  section  5  of  the  amend- 
ing act  that  the  "sections  of  such  chapter  amended  by  this  act  shall  be 
construed  as  having  been  in  effect,  as  so  amended,  as  of  the  date  of  the 
original  enactment  of  article  nine-a  of  the  tax  law,  as  added  by  chapter 
seven  hundred  and  twenty-six  of  the  laws  of  nineteen  hundred  and  seven- 
teen," so  that,  except  as  it  may  bear  upon  the  proper  construction  of  the 
law,  there  is  no  occasion  for  considering  the  provisions  of  the  original 
sections  for  which  substitutions  have  been  made. 

The  act  of  1917  inaugurated  a  new  policy  in  the  taxation  of  corpora- 
tions engaged  in  merchandizing  and  manufacturing,  or,  more  accurately 
speaking,  it  put  these  corporations  under  the  provisions  of  a  franchise 
tax  in  lieu  of  taxes  on  personal  property,  etc.,  and  in  this  regard  took  them 
out  of  the  jurisdiction  of  local  assessors.  It  was  a  move  looking  to  the 
simplification  of  the  tax  system;  of  plucking  the  maximum  of  feathers 
with  the  minimum  of  noise  from  the  goose,  to  borrow  the  expression  of 
an  ancient  political  philosopher,  and  it  is  to  be  construed  from  the  stand- 
point of  its  policy  and  purpose.  Section  209  of  the  act,  as  it  now  stands, 
and  as  it  stood  at  the  time  the  assessments  here  under  consideration  were 
made,  provides:  "For  the  privilege  of  exercising  its  franchise  in  this 
state  in  a  corporate  or  organized  capacity  every  domestic  manufacturing 
and  every  domestic  mercantile  corporation  *  *  *  shall  annually  pay 
in  advance  for  the  year  beginning  November  first  next  preceding  an 
annual  franchise  tax,  to  be  computed  by  the  tax  commission  upon  the 
basis  of  its  net  income  for  its  fiscal  or  the  calendar  year  next  preceding, 
as  hereinafter  provided,  which  income  is  presumably  the  same  as  the 


340  DECISIONS 

income  upon  which  such  corporation  is  required  to  pay  a  tax  to  the 
United  States." 

Section  211  of  the  act  provided  that  every  "corporation,  taxable  under 
this  article,"  should  make  an  annual  report  on  or  before  the  first  day  of 
July  in  each  year  to  the  tax  commission,  giving  the  name  and  location 
of  the  principal  place  of  business  of  such  corporation,  the  State  under 
the  laws  of  which  organized,  and  the  date  thereof;  the  kind  of  business 
transacted,  and  (2)  the  "amount  of  its  net  income  for  its  preceding  fiscal 
or  the  preceding  calendar  year  as  shown  in  the  last  return  of  annual  net 
income  made  by  it  to  the  United  States  treasury  department,  and  if  the 
corporation  shall  claim  that  such  return  is  inaccurate,  the  amount  claimed 
by  it  to  be  the  net  income  for  such  period." 

Having  thus  provided  for  ascertaining  the  amount  of  net  income  upon 
which  the  corporation  was  called  upon  to  pay  taxes  to  the  United  States, 
section  214  provides  that  if  "the  entire  business  of  the  corporation  be 
transacted  within  the  state,  the  tax  imposed  by  this  article  shall  be  based 
upon  the  entire  net  income  of  such  corporation  for  such  fiscal  or  calendar 
year  as  returned  to  the  United  States  treasury  department,  subject  to 
any  correction  thereof  for  fraud,  evasion  or  errors,  ascertained  by  the 
State  Tax  Commission." 

The  corporations  involved  in  this  discussion  are  domestic  organizations, 
and  so  far  as  appears  all  their  business  is  transacted  in  the  State  of  New 
York.  They  are  subject  to  a  tax  of  3  per  cent,  upon  "the  entire  net  in- 
come" for  the  fiscal  or  calendar  year  involved  in  the  assessment,  "as  re- 
turned to  the  United  States  treasury  department,  subject  to  any  correc- 
tion thereof  for  fraud,  evasion  or  errors  ascertained  by  the  state  tax  com- 
mission." The  rule  seems  entirely  simple.  The  presumption  is  that  the 
"entire  net  income"  returned  by  the  corporation  to  the  United  States  treas- 
ury department  is  the  real  net  income  of  the  corporation.  If  the  corpora- 
tion, in  its  return  to  the  State,  finds  that  it  has  erroneously  stated  any 
fact  in  its  report  to  the  United  States  it  is  privileged  to  state  the  amount 
claimed  by  it  to  be  the  net  income,  and  the  State  Tax  Commission  is 
authorized  to  make  corrections  for  "fraud,  evasion  or  errors,"  so  that 
the  actual  "entire  net  income"  for  the  year  involved  shall  be  made  to  ap- 
pear, and  upon  this  basis  the  tax  of  3  per  cent,  is  imposed  for  the  privi- 
lege of  exercising  corporate  franchises  in  this  State. 

In  the  cases  now  before  us,  the  State  Tax  Commissioners  have  followed 
the  statute  literally;  they  have  taken  the  "entire  net  income"  of  the  cor- 
porations involved,  as  returned  to  the  United  States  treasury  department, 
and  upon  such  "entire  net  income"  they  have  levied  a  tax  of  3  per  cent. 
There  is  no  claim  that  there  were  any  errors  in  the  returns  made  to  the 
United  States  treasury  department,  and  no  question  of  fraud  or  evasion 
are  involved.  The  relators  contend,  not  that  there  is  anything  wrong 
with  their  returns  to  the  United  States,  but  that  in  some  manner  the 
United  States  statutes  operate  to  change  the  law  as  it  appears  from  a 
literal  reading,  and  that  the  so-called  excess  profits  taxes  assessed  for 
and  as  of  the  year  1917  should  be  deducted  from  the  incomes  of  these 
corporations  before  the  computation  of  the  State  franchise  tax  is  made, 


DECISIONS  341 

and  that  the  income  taxes  paid  to  the  Federal  government  during  the 
year  1917  by  the  American  Broom  and  Brush  Company  should  be  de- 
ducted from  its  income  before  such  computation  by  the  State  Tax  Com- 
mission is  made. 

But,  why?  This  is  not  an  income  tax;  it  is  a  franchise  tax.  It  is  a 
tax  for  the  privilege  of  doing  business  in  a  corporate  form  in  the  State  of 
New  York,  and  the  only  relation  of  the  Federal  act  to  the  statute  of  New 
York  is  the  basis  for  the  computation  of  the  State  tax.  It  provides  for  a 
3  per  cent,  tax  upon  the  basis  of  the  "entire  net  income"  of  the  corpora- 
tion as  shown  by  its  report  to  the  United  States  government,  unless  such 
income  is  erroneously  stated,  when  the  actual  "entire  net  income"  as  deter- 
mined by  the  Tax  Commission  becomes  the  foundation  of  the  assessment. 
This  act  was  passed  in  its  present  form  subsequent  to  the  United  States 
statute  under  which  the  "entire  net  income"  was  determined  in  the  cases 
before  us,  and  if  there  had  been  any  intention  of  allowing  the  credits 
which  are  allowed  under  the  Federal  act  for  the  purpose  of  determining 
the  amount  to  be  paid  it  would  have  been  very  easy  to  have  made  this  fact 
manifest  in  the  language  used,  and  not  left  it  to  inferences  not  suggested 
by  anything  in  the  policy  of  the  law.  Under  the  Federal  act  the  income 
taxes  are  levied  after  making  a  deduction  for  the  excess  profits  taxes  as- 
sessed for  the  current  year  and  to  be  paid  in  the  following  year;  but  the 
Sfate  statute  is  not  concerned  with  the  excess  profits  taxes;  it  bases  its 
franchise  tax  upon  the  amount  of  the  "entire  net  income"  for  the  pre- 
vious year,  as  returned  to  the  United  States  treasury  department,  or  as 
corrected  in  manner  provided  for  in  the  act,  and  this  is  not  affected  by 
the  excess  profits  tax  assessed  for  the  year  upon  such  profits.  Excess 
profits  are  the  income  of  the  year  on  which  the  State  taxes  are  based, 
and  such  income  constitutes  a  part  of  the  basis  on  which  the  "entire  net 
income"  is  founded,  and  the  fact  that  the  United  States  permits  a  credit 
for  such  excess  profits  does  not  serve  to  change  the  actual  income  which 
is  disclosed  in  the  returns  of  the  taxpayer.  What  is  income  for  the  year 
prior  to  the  levying  of  the  tax  is  the  matter  to  be  determined  by  the  Tax 
Commission,  and  this  is  clearly  not  affected  by  what  the  Federal  govern- 
ment allows  in  the  way  of  deductions  or  credits  in  fixing  the  amount  of 
the  tax  which  the  corporation  is  to  pay  to  the  treasury  of  the  United 
States. 

The  changes  in  the  State  statute,  following  the  adoption  of  the  Federal 
act,  indicate  no  change  in  the  policy  of  the  State;  no  intention  of  modify- 
ing the  provision  that  there  shall  be  a  tax  of  3  per  cent,  upon  the  "entire 
net  income,"  as  shown  by  the  taxpayer's  return  to  the  Federal  govern- 
ment, with  such  corrections  as  shall  be  shown  to  be  justified  by  reason  of 
fraud,  evasion  or  errors.  To  say  that  the  errors  here  mentioned  refer  to 
errors  of  law,  through  a  failure  of  the  State  Legislature  to  adjust  itself 
to  the  credits  and  exemptions  of  the  Federal  act,  is  to  give  a  strained  con- 
struction to  language,  and  one  which  is  entirely  out  of  harmony  with  the 
general  structure  of  the  act.  The  errors  are  those  referred  to  in  sub- 
division 2  of  section  211  as  amended,  where  "if  the  corporation  shall 
claim  that  such  return  to  the  Federal  government  is  inaccurate,  the 


342  DECISIONS 

amount  claimed  by  it  to  be  the  net  income  for  such  period"  shall  be 
given,  and  then  it  is  made  the  duty  of  the  Tax  Commission  to  determine 
the  true  net  income. 

There  is  here  no  question  of  unequal  or  double  taxation.  The  United 
States  imposes  an  income  tax  upon  a  basis  which  seeks  to  arrive  at  the 
actual  income,  through  reports  submitted  under  oath  by  the  taxpayer. 
The  State  of  New  York  makes  use  of  the  net  income  thus  established  as 
the  foundation  for  a  franchise  tax,  and  establishes  machinery  for  deter- 
mining what  the  actual  "entire  net  income"  is  where  for  any  reason  the 
Federal  report  does  not  disclose  the  true  amount.  The  only  relation  of 
the  Federal  act  is  in  so  far  as  it  presumptively  shows  the  "entire  net 
income"  of  the  corporation'  for  the  year  involved,  and  the  deductions  or 
credits  or  exemptions  which  the  Federal  government  provides  in  connec- 
tion with  the  fixing  of  its  income  and  excess  profits  taxes  finds  no  place 
in  our  statute  law,  because  it  has  no  bearing  upon  the  fact  of  "entire  net 
income,"  which  is  the  only  fact  which  is  important.  Suppose,  for  in- 
stance, that  the  Legislature  had  merely  provided  for  a  3  per  cent,  fran- 
chise tax  upon  the  "entire  net  income"  or  corporations,  and  had  provided 
exactly  the  same  system  of  ascertaining  the  fact  of  net  income  which  is  in 
use  by  the  United  States.  Can  any  one  suggest  that  it  would  not  have 
arrived  at  the  same  net  income  which  is  shown  in  the  Federal  reports 
for  the  same  periods,  or  that  the  exemptions,  deductions  and  credits 
allowed  in  the  Federal  act  would  have  had  any  part  in  determining  such 
"entire  net  income?"  The  net  income  of  a  corporation  is,  of  course, 
the  amount  of  its  income  after  paying  its  expenses ;  its  overhead,  its 
interest  on  borrowed  money,  its  labor  and  material  costs,  etc.,  and  these, 
in  the  absence  of  statutory  provisions,  include  moneys  actually  paid  out 
for  taxes.  They  do  not,  of  course,  include  credits  such  as  these  allowed 
for  excess  profits,  subsequently  to  be  paid,  nor  have  they  anything  to  do 
with  exemptions.  The  Federal  statute  has  prescribed  what  shall  con- 
stitute net  income,  and  the  State  of  New  York  has  adopted  that  standard, 
giving  to  the  Tax  Commission  merely  the  power  to  correct  any  errors 
which  may  have  occurred  in  the  making  of  such  reports  to  the  Federal 
government,  and  in  the  assessments  here  under  consideration  the  State 
Tax  Commission  has  followed  the  law  and  has  levied  the  tax  upon  the 
returns  of  the  "entire  net  income"  made  by  the  relators.  The  State 
franchise  tax  thus  assessed  bears  equally  upon  every  like  corporation 
within  the  State  of  New  York.  It  does  not  constitute  a  double  fran- 
chise tax,  though  the  National  government  makes  use  of  the  same  foun- 
dation in  levying  an  income  tax.  The  two  governments  act  independently, 
and  levy  different  taxes,  and  we  are  unable  to  discover  any  of  the  evils 
which  are  charged  against  the  assessments  here  under  consideration. 

It  is  difficult  in  advance  to  determine  what  the  right  to  do  business 
in  an  organized  capacity  for  the  coming  year  is  worth.  The  fixing  of 
a  measure  upon  which  the  value  of  the  right  can  be  determined  to  quite 
an  extent  must  be  arbitrary — perhaps  artificial.  In  no  case  under  our 
law  is  the  actual  net  income  the  basis  of  a  franchise  tax.  Either  capital 
employed,  or  the  gross  earnings,  or  the  capital  and  dividends,  the  pre- 


DECISIONS  343 

miums  received,  the  capital  stock,  surplus  and  undivided  profits,  or  the 
surplus  and  undivided  profits,  is  made  the  measure  of  the  tax.  In  this 
case  the  Legislature  measures  the  tax  by  the  net  income  as  defined  by, 
and  as  reported  under,  the  Federal  act.  The  sole  question  is,  what  is  the 
measure  adopted,  and  the  act  itself  leaves  no  doubt  upon  that  question — 
the  return  of  net  income  made. 

The  presumption  found  in  section  209  of  the  act  is  not  in  our  way.  It 
is  stated  as  a  presumption,  and  if  a  particular  case  does  not  come  within 
the  presumption  that  would  not  destroy  the  plain  intent  and  purpose 
of  the  act  as  otherwise  declared.  But  the  presumption  comes  true.  Every 
taxable  corporation  is  required  to  pay  a  tax  upon  its  net  income.  In  the 
case  of  a  corporation  not  paying  an  excess  profits  tax  the  normal  income 
tax  is  based  solely  upon  net  income  returned.  In  the  case  of  a  corpora- 
tion paying  an  excess  profits  tax  that  tax  is  based  solely  upon  the  net 
income  returned.  If  we  adopt  the  appellant's  theory  that  the  excess 
profits  tax  changes  the  net  income,  so  far  as  the  normal  tax  is  concerned, 
it  cannot  change  the  result  here  because  the  appellants'  excess  profits 
tax  was  computed  upon  the  return.  The  statute  does  not  require  that 
all  the  taxes  paid  must  be  based  upon  the  net  income,  but  it  suggests  a 
probability  that  the  return  is  the  basis  of  some  tax  required  from  the 
corporation. 

The  determination  of  the  State  Tax  Commission  should  be  confirmed, 
with  costs. 

Removable  Machinery  is  Personal  Property  and  Exempt  from  Taxa- 
tion Under  Art.  g-a. 
By  Mr.  Justice  DELEHANTY. 

People  ex  rel.  Gen.  Chemical  Co.  v.  Cantor  et  al. — This  proceeding  is 
instituted  to  review  the  assessments  made  by  defendants  for  the  purpose 
of  taxation  for  the  year  1918  of  real  property  owned  by  relator,  located 
in  the  Borough  of  Queens  in  the  City  of  New  York.  The  properties 
were  assessed  as  follows:  Lot  5,  land  improved  $25,000,  land  with  im- 
provements thereon  $105,000;  lot  50,  land  improved  $169,000,  land  with 
improvements  thereon  $306,000;  lot  60,  land  improved  $23,500,  land  with 
improvements  thereon  $88,000.  The  amounts  included  for  improvements 
on  the  land,  Viz.,  $80,000  on  lot  5,  $137,000  on  lot  50,  and  $64,500  on  lot 
60,  were  fixed  as  follows:  Lot  5,  buildings  $40,000,  machinery  and  equip- 
ment $40,000;  lot  50,  buildings  $77,000,  machinery  and  equipment  $66,000; 
lot  60,  buildings  $26,200,  machinery  and  equipment  $38,300.  Included  in 
the  item  for  machinery  and  equipment  is  an  assessment  conceded  by  re- 
lator as  correctly  made  for  "boilers,  ventilating  apparatus,  elevators,  gas, 
electric  and  water  power,  generating  apparatus  and  shafting"  on  the  fol- 
lowing valuations.  Lot  5,  $12,230;  lot  50,  $16,840,  and  lot  60,  $7,000. 
During  the  time  the  books  of  annual  record  were  open  for  inspection, 
relator  filed  with  defendants  application  for  correction  of  said  assess- 
ments on  the  ground  that  same  were  erroneous  because  there  was  in- 
cluded therein  the  value  of  machinery  and  equipment  which  relator  claimed 
were  exempt  from  assessment  by  virtue  of  section  219J  of  chapter  726, 


344  DECISIONS 

Laws  of  1917.  After  hearing  duly  had  thereon  the  respondents  decided 
that  said  machinery  and  equipment  were  properly  and  legally  assessable 
as  real  estate  as  denned  by  subdivision  6  of  section  2,  article  1  of  the  Tax 
Law,  and  that  such  machinery  and  equipment  were  not  exempt  from  as- 
sessment for  taxation  for  local  purposes  under  the  provisions  of  said 
section  219J  of  the  Tax  Law.  The  amount  of  the  assessment  in  dispute 
is  the  difference  between  the  total  amount  added  for  machinery  and 
equipment  and  the  amount  at  which  the  boilers,  &c.,  were  included,  which 
is  as  follows:  Lot  5,  $27,770;  lot  50,  $43,160;  lot  60,  $31,300.  In  other 
words,  it  is  the  contention  of  the  relator  that  under  article  9A  of  the  Tax 
Law  (added  by  chap.  726,  Laws  of  1917,  in  effect  June  4,  1917,  amended 
by  chaps.  271,  276,  292  and  417,  Laws  of  1918),  the  machinery  and  equip- 
ment other  than  the  boilers,  &c.,  were  exempt  from  taxation  and  there- 
fore improperly  included  in  the  assessments.  The  question  submitted  for 
determination,  therefore,  is  as  to  the  change  chapter  726  of  the  Laws  of 
1917  has  made  in  the  taxable  status  of  machinery  and  equipment  of  manu- 
facturing and  mercantile  corporations.  Article  9A  of  the  Tax  Law,  above 
mentioned,  is  commonly  known  as  the  Emerson  Act  or  the  "New  York 
State  Income  Tax  Law."  It  substitutes  a  new  system  of  taxing  manu- 
facturing and  mercantile  corporations,  to  wit,  3  per  cent,  on  their  net 
income,  and  provides  that  thereafter  such  corporations  shall  not  be  sub- 
ject to  assessment  or  taxation  on  their  personal  property  which  the  act 
defines.  Section  219J  of  the  Tax  Law,  so  far  as  material,  reads  as 
follows:  "Manufacturing  and  mercantile  corporations  exempt  from  per- 
sonal property  tax  and  from  the  provisions  of  sections  twelve,  twenty- 
seven,  one  hundred  and  eighty-two  and  one  hundred  and  ninety-two  of  the 
Tax  Law.  After  this  article  takes  effect  manufacturing  and  mercantile 
corporations  shall  not  be  assessed  on  any  personal  property  which  for  the 
purpose  of  this  exemption  shall  include  such  machinery  and  equipment 
affixed  to  the  building  as  wTould  not  pass  between  grantor  and  grantee 
as  a  part  of  the  premises  if  not  specifically  mentioned  or  referred  to  in 
the  deed,  or  as  would,  if  the  building  were  vacated  or  sold,  or  the  nature 
of  the  work  carried  on  therein  changed,  be  moved,  except  boilers,  ventilat- 
ing apparatus,  elevators,  gas,  electric  and  water  power  generating  ap- 
paratus and  shafting."  Prior  to  the  passage  of  the  Emerson  Act,  "real 
estate"  for  the  purpose  of  taxation  was  defined  by  subdivision  6,  section  2, 
of  the  Tax  Law  as  "the  land  itself  above  and  under  water,  all  buildings  and 
other  articles  and  structures,  substructures  and  superstructures,  erected 
upon,  under  or  above,  or  affixed  to  the  same,"  &c.,  and  under  the  decisions 
of  this  state  it  has  been  held  that  pursuant  to  said  section  quoted  ma- 
chinery installed  in  a  building  and  affixed  to  the  realty  is  taxable  as  real 
estate.  (N.  Y.  Edison  Co.  v.  Wells,  135  App.  Div.,  644,  and  cases  there 
cited ) .  But  the  situation  in  this  respect  is  now  changed.  The  Legis- 
lature by  the  Emerson  Act  has  defined  what  shall  constitute  "personal 
property"  for  the  purpose  of  taxation  of  mercantile  and  manufacturing  cor- 
porations and  has  made  such  exempt  from  local  taxation.  The  language 
used  in  the  statute  is  in  nowise  uncertain  or  doubtful  of  meaning,  and 
in  my  opinion  the  plain  intent  thereof  was  to  exempt  from  personal 


FORMS  345 

property  tax  such  machinery  and  equipment  affixed  to  the  building  as  could 
be  removed  therefrom  without  material  injury  thereto,  except,  of  course, 
boilers,  &c.,  expressly  precluded.  This  is  obvious  from  the  context  of  the 
statute  quoted;  otherwise  why  an  enumeration  of  machinery  and  equip- 
ment not  exempt  from  taxation?  It  is  well  settled  that  the  only  ma- 
chinery and  equipment  affixed  to  a  building  that  would  not  pass  by  deed 
unless  specifically  mentioned  therein  would  be  such  as  are  detachable  and 
removable  without  material  injury  to  the  building,  and  the  same  rule  of 
construction  applies  to  the  other  clause  of  the  statute,  for  if  the  ma- 
chinery and  equipment  were  permanently  affixed  to  the  building  it  would 
be  properly  taxable  as  real  estate,  whether  or  not  the  building  were  va- 
cated or  sold,  or  the  nature  of  the  work  carried  on  therein  changed.  View- 
ing this  legislation  from  all  angles  contended  for,  I  am  unable  to  reach  any 
other  conclusion  than  that  claimed  by  the  relator  and  intervenor,  and  as 
defendants  conceded  by  stipulation  that  all  said  machinery  and  equip- 
ment of  relator  could  be  detached  and  removed  without  material  injury 
to  the  building  in  question,  I  conclude  that  the  motion  for  reduction  of 
assessment  should  be  granted  as  prayed  for.  Settle  order  accordingly  on 
notice. 

FORMS. 

FORM  101. 

NEW    YORK    STATE    INCOME    TAX 

EUGENE  M.   TRAVIS,   State   Comptroller 

(This   certificate   has   no  effect   on   citizenship   or   voting  residence.) 


CERTIFICATE   OF   TAXPAYER   CLAIMING   RESIDENCE  IN   THE   STATE   OF 

NEW  YORK 

(To  be  filed  with  withholding  agent  by  resident  of  New  York  State,  pur- 
suant to  section  366  of  the  tax  law,  for  the  purpose  of  claiming 
the  benefit  of  such  residence  for  income  tax  purposes.) 

To ; 

(Withholding  agent) 


(Address) 

I  hereby  declare  that  I  am  a  resident  of  the  state  of  New  York;  that 

I  reside  at ,   ; 

( Street  and  number )  ( City,  town  or  village ) 

that  I  have  no  definite  intention  as  to  when  (if  at  all)  I  will  establish 
my  home  without  the  state;  and  that  if  I  decide  to  establish  my  home 
without  the  state,  or  at  another  place  within  the  state,  I  will  promptly 
give  you  notice  of  that  fact  and  of  my  new  residence  address. 

(Signed) 


346  FORMS 

Affidavit  by   Corporation  that  has  Discontinued  Business. 

STATE  OF  NEW  YORK, 

County   of ss. : 

,  being  duly  sworn,  deposes  and  says : 

That  up  to  the    day  of    ,   191 . . ,  he  was  an  officer 

of  the    corporation,  to  wit,  its    That  on 

said  date,  the  said  company  discontinued  its  business  in  the  State  of  New 
York. 

That  since  said    ....    day  of    ,  191 . . ,  the  said  corporation 

has  not  transacted  business  of  any  kind  whatsoever  in  New  York  State 
and  has  entirely  ceased  to  exercise  its  corporate  franchise  in  New  York 
State;  it  has  given  up  its  place  of  business  and  cancelled  the  lease  which 
it  held  on  its  New  York  office,  and  has  now  no  place  of  business  and  no 

property  of  any  kind  in  this  state,  nor  has  it  since day  of , 

191...  (Here  state  any  additional  facts  to  show  that  on  or  before  the 
1st  day  of  November,  191..,  or  for  the  taxable  year  in  question,  the  cor- 
poration had  ceased  doing  business  or  had  ceased  exercising  its  corporate 
franchises. ) 

That  said  company  has  no  outstanding  accounts  of  any  kind,  and  no 
bank  account  in  New  York  State. 


Sworn  to  before  me,  this 

day  of  ,  191... 

The  form  of  application  for  a  revision  of  a  tax,  preliminary  to 
certiorari  proceedings  is  given  in  the  body  of  the  book. 

The  following  forms  in  certiorari  are  under  Article  9 -a,  but  the 
forms  may  be  varied  to  suit  the  facts  and  law  under  Articles  9 
and  16. 

Notice  of  Application  for  Writ  of  Certiorari. 
SUPREME  COURT— County. 


The    People    of    the    State    of    New    York 

ex  rel Company, 

against 
and   , 

Constituting  the  State  Tax  Commission 
of  the  State  of  New  York. 


Sirs: 

Please  take  notice,  that  upon  the  petition  of  the 

Company,   verified    ,   and 

on  the  undertaking  for  costs  herein  filed  with  the  State  Tax  Commission 


FORMS  347 

of  the  State  of  New  York,  copies  of  which  are  hereto  annexed,  the  under- 
signed will  move  this  court,  at  Special  Term  thereof,  to  be  held  at  the 

County  Court  House,  city  of  Albany,  on  the    day  of 

,   at    o'clock  A.  M.,   or   as   soon 

thereafter  as  counsel  can  be  heard,  for  an  order  for  a  writ  of  certiorari 
and  also  for  a  writ  of  certiorari  to  be  directed  to  you  to  review  the  de- 
termination of  the  State  Tax  Commission  of  the  State  of  New  York, 

dated   ,  a  copy  of  which  is  hereto  annexed,  and  to 

be  returnable  according  to  law,  and  for  such  other  and  further  relief  as 
may  be  just. 

Dated    

Yours,  etc., 


Attys.  for  Petitioner. 

To    

Chairman  of  the  State  Tax  Commission  of  the 
State  of  New  York. 


Petition  for  Writ  of  Certiorari. 

(Same  title  as  in  previous  form.) 
To  the  Supreme  Court  of  the  State  of  New  York: 

The  petition  of   Company  respectfully  shows : 

I.  The  defendant  is  a    corporation,   organized  under  the 

laws  of   the   State  of    having   its   principal   office  at 

(if  the   petitioner   is   a  foreign   corporation 

add  "and  also  having  an  office  at ,  within  the  State 

of  New  York" )    for  the  purpose  of    ,  and  actually 

engaged  in  the  business  of   

II.  The  defendants,    ,    and    ,   are  and 

have  been  since  all  of  the  members  of  the  State 

Tax  Commission  of  the  State  of  New  York. 

III.  That  on  or  about  the    day  of    ,   191 .., 

this  petitioner  duly  made  a  written  report  to  the  State  Tax  Commission 
of  the  State  of  New  York,  as  required  by  section  211,  article  IX-a  of  the 
Tax  Law,  being  Chapter  60  of  the  Consolidated  Laws.  A  copy  of  said  re- 
port is  hereto  annexed,  marked  "A,"  and  made  part  hereof. 

IV.  That   said   report    shows   the   condition   of   the    petitioner    for   the 
calendar  year  ending  December  31,  191. .    [or  the  fiscal  year  as  reported  to 
the  United  States  treasury  department],  which  was  as  follows: 

(Here  state  the  material  facts  embodied  in  such  report.) 

V.  That  on  or  about   [state  date  when  account 

was    audited],    the    State   Tax    Commission    audited    and    stated    an    ac- 
count of  taxes  to  be  paid  by  this  petitioner,  under  section  209  of  the  Tax 


348  FORMS 

Law,  and  sent  a  notice  thereof  to  your  petitioner,  a  copy  of  which  is 
hereto  annexed,  marked  "B,"  and  made  part  hereof. 

VI.  That   on   or   about  the    day  of    ,    191 .., 

and  within  one  year  from  the  time  that  said  account  of  the  Commission 
had  been  audited  and  stated  and  notice  thereof  sent  to  your  petitioner, 
it  applied  to  the  said  State  Tax  Commission  to  revise  and  readjust  said 
account  and  to  have  said   account  resettled.     That  said  application  was 

made  by  written  petition  duly  verified  on  or  about  the   

day  of  ,  a  copy  of  which  is  hereto  annexed,  marked  "C," 

and  made  part  hereof. 

VII.  That  on  such  petition  a  rehearing  was  granted  to  your  petitioner 

by   said   Commission    on   the    day   of    , 

at  the  office  of  the  Commission,  in  the  city  of  Albany.     On  such  rehear- 
ing your  petitioner  appeared  by  one  of  its  officers  (or  other  witness)    and 

by  its  counsel   ,  before  the  Hon , 

a  member  of  said  Commission,  and  answered  such  questions  as  were  put 
to  him   [or  them]  by  said  Commissioner,  and  gave  testimony  in  support 
of  said  application. 

That  your  petitioner  is  advised  and  believes  from  the  evidence  and  proofs 
then  and  there  given  that  it  is  not  taxable  in  this  state  upon  its  annual 

net  income  for  more  than  $ [or  for  any  sum  whatever], 

for  the  reason  that  [state  reasons*  in  full]. 

VIII.  That  thereafter  and  on  the day  of , 

191..,  the  said  Commission  made  its  determination  and  sent  written  no- 
tice thereof   to   the  applicant,   a  copy   of   which   determination  is   hereto 
annexed,  marked  "D,"  and  made  part  hereof.     That  in  and  by  said  de- 
termination   said    Commission    refused    to    revise    or    readjust    said    tax 
(except  to  the  amount  of  $ ) . 

IX.  Your  petitioner  further  shows  that  the  said  appraisal  of  its  an- 
nual net  income  subject  to  state  taxation  is  illegal  and  erroneous   (to  the 
amount    of   $ ) . 

X.  Your  petitioner  is  advised   and  believes  that  the  said   determina- 
tion   of    the    Commission    may    be    reviewed    by    this    court    by    writ    of 
oertiorari  and  relief  granted  to  your  petitioner  as  provided  by  sections 
199  and  218  of  the  Tax  Law. 

XI.  Your  petitioner,  pursuant  to  the  statute  in  such  case  made  and 
provided,  duly  deposited  with  the  State  Comptroller  of  the  State  of  New 

York  $ ,  being  the  full  amount  of  the  taxes,  percentages, 

interest    and    other    charges    stated    in    said   account,    and    duly   filed    an 
undertaking   with    the   State   Tax    Commission    in    an    amount    and   with 
sureties  approved  by  a  justice  of  the  Supreme  Court  of  the  State  of  New 
York  to  the  effect  that  if  the  said  writ  of  certiorari  is   dismissed  and 
said    determination    is    confirmed   tliis   petitioner    will   pay    any    and    all 
charges  and  costs  which  may  accrue  against  it  in  the  prosecution  of  the 


FORMS  349 

writ,  including  the  cost  of  all  appeals;    a  copy  of  this  undertaking  is 
hereto  annexed,  marked  "E,"  and  made  part  hereof. 

XII.  That  thirty  days  have  not  elapsed  since  the  Commission  served 
notice  on  your  petitioner  of  its  said  determination,  upon  the  application 
of   your    petitioner    for    revision    and   readjustment    of   the   said    account 
stated  against  it. 

XIII.  That  your  petitioner  is  aggrieved  by  the  said  determination  of 
the  Commission.     That  no  previous  application  has  been  made  for  the 
writ  to  any  court  or  judge. 

WHEREFORE,  your  petitioner,  desiring  to  review  both  on  law  and  the 
facts,  said  determination  of  said  Commission  upon  such  application  made 
to  it  by  your  petitioner  for  a  revision  and  resettlement  of  the  said  account, 
as  hereinbefore  set  forth,  prays  that  a  writ  of  certiorari  may  issue  out 
of  this  court,  directed  to  the  members  of  the  State  Tax  Commission, 
commanding  them  to  certify  and  return  to  this  court  at  the  office  of  the 
clerk  of  Albany  County,  all  and  singular  the  evidences  before  the  said 
Commission  on  such  application  and  all  the  papers  and  proofs  upon  the 
original  statement  of  such  account,  and  all  proceedings  thereon,  and  all  its 
decisions  and  actions  in  the  premises,  with  all  the  evidence,  documents, 
reports,  records  and  papers  relating  thereto  in  its  possession  or  under  its 
control,  submitted  to  or  considered  by  it,  concerning  said  account  and 
the  grounds  of  its  refusal  to  revise  and  readjust  the  same,  to  the  end 
that  its  said  determination  and  decision  may  be  reviewed  and  the  said 
original  and  resettled  account  corrected  and  restated,  and  that  this 
petitioner  have  such  other  and  further  relief  as  may  be  proper. 

Dated  

Company. 


President  (or  other  officer.) 
Attorneys  for  Petitioner. 

Order  for  Writ  of  Certiorari. 

At  a  Special  Term   of   the  Supreme   Court,  held  in   and  for  the 

county   of    ,   at  the   County   Court  House,   in   the 

city  of    on  the    day  of    , 

191.. 

Present — Hon ,  Justice. 

(Same  title  as  in  previous  form.) 

Upon  reading  and   filing  the  petition  of    Company, 

verified    ,  and  the  exhibits  thereto  attached,  and 


350  FORMS 

upon  the  undertaking  heretofore  filed  as  required  by  law,  and  upon  the 
notice  of  this  application  duly  served  on  the  State  Tax  Commission  of 
the  State  of  New  York,  and  with  proof  of  due  service  thereof  with  copy 
of  the  petition  and  exhibits  annexed. 

Now,  after  hearing  ,  counsel  for  the  petitioner, 

in  favor  of  the  motion,  and  ( ,  deputy  attorney-general, 

for  the  State  Tax  Commission)  (or  no  one  appearing)  in  opposition  there- 
to, and  on  motion  of attorney  for  the  petitioner, 

it  is 

ORDERED,  that  a  writ  of  certiorari,  as  prayed  for  in  said  petition,  be 
issued,  directed  to  the  above-named  members  of  the  State  Tax  Commis- 
sion of  the  State  of  New  York,  to  review  the  decision  and  determination 
of  the  said  Commission  mentioned  and  described  in  the  petition,  and  the 
questions  involving  the  merits  therein  mentioned,  both  upon  the  law  and 
the  facts,  which  writ  shall  be  returnable  within  twenty  days  after  the 
service  thereof  upon  the  chairman  of  said  Commission,  at  the  office  of 
the  clerk  of  Albany  County. 

Enter, 

Justice. 

(Endorsed)  :  Sir:  You  will  please  take  notice  that  an  order  of  which 
the  within  is  a  copy,  was  this  day  duly  entered  in  the  office  of  the  clerk 
of  this  court,  at  his  office  in  the  county  of 

Dated, ,191... 

Yours,  etc., 


Attorney  for  Relator. 
To  Hon.  . 


Constituting  the  State  Tax  Commission  of  the  State  of  New  York. 
Albany,  N.  Y. 


Writ  of  Certiorari. 
(Same  title  as  in  previous  form.) 

WHEREAS,  we  have  been  informed  by  the  verified  petition  of 

Company,  dated  and  verified  the   day 

of    ,    191 . .,   that    certain    proceedings   have   been    had 

before  the  State  Tax  Commission  of  the  State  of  New  York,  upon  the  ap- 
plication of  the  said   Company  to  revise  and 

readjust  an  account  theretofore  audited  and  stated  by  the  said  Commission 
for  taxes  to  be  paid  by  the  said    Company, 


FORMS  351 

under  section  209  of  the  Tax  Law,  the  petition  upon  which  the  said  ap- 
plication was  made  being  verified  ,  191 . .,  and  a 

hearing  upon  such  application  having  been  had  on  the 

day  of  ,  191.  .,  and  the  said  Commission  having  there- 
after made  its  determination  and  sent  written  notice  of  its  determination 
upon  such  application  to  the  applicant,  the  petitioner  herein,  denying  the 
application  and  declining  to  make  any  revision  or  readjustment  of  the  said 

account,  and  the  said    Company  having  now 

made  application  to  this  court  for  a  writ  of  certiorari  to  review  the  said 
decision  and  determination  of  the  said  Commission; 

And  we  being  willing  for  certain  purposes  to  be  certified  of  such  pro- 
ceedings, if  any  such  were  had,  do  hereby  command  and  strictly  enjoin 

,    and    ,   constituting 

the  members  of  the  State  Tax  Commission  of  the  State  of  New  York,  that 
the  said  Commission  certify  and  return  all  and  singular  the  evidence  before 
it  on  such  application,  and  all  the  papers  and  proofs  upon  the  original 
statement  of  such  account  and  all  proceedings  thereon,  and  all  its  deci- 
sions and  actions  in  the  premises,  with  all  the  evidence,  documents,  re- 
ports, records  and  papers  relating  thereto  in  its  possession  or  under  its 
control,  submitted  to  or  considered  by  it,  concerning  the  said  account 
and  the  grounds  of  its  refusal  to  revise  and  readjust  the  same,  as  prayed 
for  in  the  petition,  within  twenty  days  after  the  service  upon  the  chair- 
man of  said  Commission  of  this  writ,  at  the  office  of  the  clerk  of  Albany 
County,  under  his  proper  hand,  pursuant  to  the  provisions  of  the  Tax 
Law  and  the  provisions  of  Title  II  of  Chapter  16  of  the  Code  of  Civil 
Procedure,  so  that  our  Supreme  Court  may  further  cause  to  be  done 
thereon  what  of  right  and  according  to  law  ought  to  be  done,  and  let 
the  defendants  have  then  and  there  this  writ. 

WITNESS,  the  Hon ,  Justice  of  our  Honorable 

Court,  at  the  Court  House  in  the  city  of this 

day  of  ,  191..  . 


(Seal.)  Clerk. 

Attorney  for  Eelator. 

The    above    writ    is    hereby    allowed    this    day    of 

,    191.. 


Justice  Supreme  Court. 

Undertaking  for  Costs. 
(Same  title  as  in  previous  form.) 

WHEREAS,  the  above-named  Company,  here- 
tofore applied  to  the  State  Tax  Commission  of  the  State  of  New  York  to 
revise  and  readjust  the  account  heretofore  audited  and  stated  by  the 


352  FORMS 

said  Commission,  imposing  a  tax  against  the  said    

Company   for   the  year    ,   under    ( sec.   209 )    of   the   Tax 

Law,  and  the  said  Commission  having  denied  said  application;   and 

WHEREAS,   said    Company,   feeling   aggrieved 

thereby,  is  about  to  apply  to  the  Supreme  Court  of  the  State  of  New  York 
for  a  writ  of  certiorari,  under  the  Tax  Law,  Chapter  60,  of  the  Con- 
solidated Laws,  to  review  the  action  of  the  said  Commission. 

Now,  THEREFORE,  the   Surety  Company,  a  corpora- 
tion duly  organized  under  the  laws  of  the  State  of   

to  execute  surety  bonds,  having  an  office  at   city  of 

,    does    hereby    undertake    that    if    the    said   writ    of 

certiorari,    which    may    be    granted    upon    the    application    of    the    said 

Company  to  review  the  said  determination,  be 

dismissed,  or  the  determination  of  the  said  Commission  be  confirmed,  the 

said    Company  will  pay  all  costs  and  charges 

which  may  accrue  against  it  in  the  prosecution  of  the  said  writ,  including 
the  costs  of  all  appeals,  not  exceeding  the  sum  of  five  hundred  dollars. 

Dated,  etc., 

Surety  Company, 

By    President. 

Form  of  acknowledgment  by  officer  of  surety  company  in  usual  form  for 
taking  corporate  acknowledgments. 

(The  above  bond  may  also  be  given  by  two  individuals,  each  quali- 
fying fof  twice  the  amount  of  the  bond,  with  affidavit  and  acknowledg- 
ment annexed  in  each  case.) 


Commission's  Return  to  the  Writ  of  Certiorari. 
SUPREME  COURT— Albany  County. 


The    People    of    the    State    of    New    York 

ex   rel Company, 

against 
, and , 

Constituting  the  State  Tax   Commission 
of  the  State  of  New  York. 


To  the  Supreme  Court  of  the  State  of  New  York: 

The  return  of  ,  and  ,  constitut- 
ing the  members  of  the  State  Tax  Commission  of  the  State  of  New  York, 
to  the  writ  of  certiorari  directed  to  the  said  Commission,  issued  out  of 


FORMS  353 

this  court  ,  191. .,  directed,  a  copy  of  which  is  hereto 

annexed,  respectfully  shows  to  this  court: 

By  virtue  of  and  in  obedience  to  the  said  writ  of  certiorari,  we  do  herehy 
certify  and  return  to  the  Supreme  Court  all  and  singular  the  evidence  be- 
fore said  Commission  on  such  application,  all  the  papers  and  proofs  upon 
the  original  statement  of  such  account  and  all  the  proceedings  therein, 
documents,  reports,  records  and  papers  relating  thereto  in  its  possession 
or  under  its  control,  submitted  to  or  considered  by  said  Commission  con- 
cerning the  said  account  as  prayed  for  in  the  petition  herein,  to  wit: 

The  corporate  franchise  tax  report  based  on  net  income  of  the 
Company  for  the  calendar  year  ending  De- 
cember 31,  191. .  [or  the  fiscal  year  reported  to  the  United  States  Treasury 
Department}. 

The  bill  of  the  Commission  to  the  relator  for  its  franchise  tax  for  the 
said  year; 

The  petition  of  relator  for  a  revision,  dated ,  191 ..; 

Notice  to  the  Commission  of  the  payment  of  the  tax  as  fixed  under 

protest  and  duress  by  the  present  of  said  company,  dated , 

191..; 

The  determination  of  the  Commission,  dated    ,  191. . ; 

Petition  and  notice  of  motion  for  an  order  for  writ  of  certiorari,  dated 
,  191 . . ,  and  writ; 

Order  allowing  the  writ  of  certiorari,  dated  ,  191 . ., 

and  writ  also  dated  ,  191 ..,  together  with  notice  of 

entry  in  the  office  of  the  clerk  of  Albany  County  on  the day 

of  ,  191..,  all  other  papers  used  on  the  hearing  or  consid- 
ered by  the  Commission  in  this  proceeding  and  undertaking  on  appeal 
heretofore  filed. 

In  witness  whereof,  I  have  hereunto  set  my  hand  and  seal  this 
day  of  ,  191... 


Chairman  of  the  State  Tax  Commission  of  the  State  of  New  York. 


354  FORMS 


FORM  3IT 
CORPORATION    INCOME    TAX     (9-a) 

FILE   WITH 

STATE  TAX  DEPARTMENT, 

ALBANY,  N.  Y. 


TAXATION   OF   CORPORATE   FRANCHISES    UNDER   ARTICLE   9-a    OF   THE    TAX   LAW 
FOR  THE   TAX   YEAR  BEGINNING   NOVEMBER    1,    1919 


THIS  REPORT  is  DUE  JULY  1,  1919,  or  within  thirty  days  after  filing  report 
with  the  United  States  Treasury  Department 


As of  the Company. 

I  make  the  following  report  of  such  company  for  the  year  ending 

191 ,  pursuant  to  Article  9-a  of  the  Tax  Law. 

(Date  inserted  above  must  be  the  same  as  given  in  answer  to   (7)   below.) 

( 1 )    Organized ,   19 .  .  . ,   under  the  Laws  of (2 )    Began 

business  in  New  York ,   19 .... 

(3)  If  not  incorporated  under  laws  of  New  York,  has  it  been  authorized 

to  do  business  in  New  York  State? 

( 4 )  Authorized  capital  stock,  $ ( 5 )    Issued  capital  stock, 

$ 

(If  organized  with  shares  without  par  value,  insert  the  amount  of 
paid-in  capital.) 

( 6 )  Amount  of  average  indebtedness  for  year,  $ 

(7)  ENTIRE  NET  INCOME  FOR  THE  YEAR  ENDING , 

191. .  .,  as  shown  by  its  report  to  UNITED  STATES  TREASURY 
DEPARTMENT,  before  any  deduction  for  excess  profit  or  normal 

income  tax  has  been  made,  $ 

NOTE:  The  date  used  must  be  that  of  the  last  period  ending  on  or 
before  June  30,  1919,  for  which  a  report  was  made  to  the  Federal 
government. 

(8)  If  a  corporation  is  not  organized  under  the  laws  of  any  state  within 

the  United  States  it  should  return  its  entire  net  income,  wherever 
earned.    $ 

(9)  If  the  amount  reported  above  is  inaccurate,  state  the  amount  claimed 

to  be  correct,  $ 

(10)   Nature  of  business  and  how  transacted.  . 


(11)   Place,  street  and  number  where  such  business  is  conducted 


FORMS  355 

( 12)  Where  will  mail  reach  the  company 

(13)  State  the  city  or  town,  street  number  and  state  where  this  company 

maintained  any  store,  warehouse,  factory  or  other  place  of  business 
outside  the  State  of  New  York 

(14)  Any  corporation  taxable  hereunder  may  omit  from  this  report  the 

segregation  of  assets  on  this  page  only  by  signing  the  following 

consent 

I  AM  AUTHORIZED  by  the  Board  of  Directors  of  this  cor- 
poration to  consent  and  I  do  hereby  consent  that  said  corporation  be 
taxed  upon  its  entire  net  income  at  4%  per  cent  or  upon  its  entire 
issued  capital  stock  at  one  mill  on  theHollar,  as  provided  by  law. 

Do  not  sign  consent  unless  taxable  by  the 
State  of  New  York  on  entire  income  or  en- 
tire issued  capital  stock. 


(Official  title) 

TOTAL    SEGREGATED    ASSETS    WHEREVER    LOCATED 

(a)  Average  monthly  value  of  bills  and 
accounts  receivable  for  personal 
property  manufactured  by  it. .  .  .$ $ 

(&)  Average  monthly  value  of  bills  and 
accounts  receivable  for  personal 
property  sold  by  the  corporation 
from  merchandise  owned  by  it  at 
the  time  of  acceptance  of  order 
but  not  manufactured  by  it $ $ 

(c)  Average  monthly  value  of  bills  and 
accounts  receivable  for  services 
performed,  based  on  orders  re- 
ceived at  offices  maintained  by 
the  corporation,  excluding  bills 
and  accounts  receivable  on  or- 
ders filled  from  a  stock  of  mer- 
chandise or  other  property  main- 
tained by  the  corporation $ $ 

^Average  monthly  value  of  all  its  real 
property  wherever  located  (actual 
value ) $ $ 

^Average  monthly  value  of  all  its  tangi- 
ble personal  property  wherever  lo- 
cated ( actual  value ) $ $ 


Total .  .  $  .  .  ,      NOT  TO  BE  FILLED 


356  FORMS 

§Average  total  actual  value  of  shares  of 
stocks  of  other  corporations  owned 
by  this  corporation $ 

ASSETS  SEGREGATED  TO  NEW 
YORK  STATE  ONLY 

(a)  Average  monthly  value  of  bills  and 

accounts  receivable  for  personal 
property  manufactured  by  it 
within  this  state $ 

(b)  Average  monthly  value  of  bills  and 

accounts  receivable  for  personal 
property  sold  by  it  from  mer- 
chandise owned  by  it  and  lo- 
cated in  this  state  at  the  time  of 
acceptance  of  the  order,  but  not 
manufactured  by  it  within  this 
state  $ 

(c)  Average  monthly  value  of  bills  and 

accounts  receivable  for  services 
performed,  based  on  orders  re- 
ceived at  offices  maintained  by 
the  corporation  within  this  state, 
excluding  bills  and  accounts  re- 
ceivable arising  from  sales  made 
from  a  stock  of  merchandise  or 
other  property  at  a  place  of  busi- 
ness maintained  by  the  corpora- 
tions within  this  state $ 

^Average  monthly  value  of  its  real  prop- 
erty within  this  State  as  detailed 
in  this  report  (actual  value)  ...$ 

^Average  monthly  value  of  its  tangible 
personal  property  in  New  York 
State  as  detailed  in  this  report 
(actual  value)  $ NOT  TO  BEFILLED 

Total $ $ 

{Average  total  actual  value  of  shares  of 
stocks  of  other  corporations  owned 
by  it  and  allocated  to  this  State  by 
rule  below  $ $ 

t  Real  property  and  tangible  personal  property  shall  be  taken  as  its 
actual  value  where  located. 

§  The  value  of  share  of  stock  of  another  corporation  owned  by  a  corpora- 
tion liable  hereunder  shall  for  purposes  of  allocation  of  assets  be  appor- 


FORMS 


357 


tioned  in  and  out  of  the  State  in  accordance  with  the  value  of  the  physical 
property  in  and  out  of  the  State  representing  such  share  stock. 

NOTE. — If  the  amount  of  the  annual  net  income  of  any  corporation  tax- 
able under  this  article  as  returned  to  the  United  States  treasury  depart- 
ment is  changed  or  corrected  by  a  commissioner  of  internal  revenue  or 
other  officer  of  the  United  States,  such  corporation,  within  ten  days  after 
receipt  of  such  notification  of  change  or  correction,  shall  make  return  under 
oath  or  affirmation  to  the  Tax  Commission  of  such  changed  or  corrected 
net  income  upon  which  the  tax  is  required  to  be  paid  to  the  United  States. 


INSTRUCTION 


Name  of  city,  town  or 
incorporated  village 

1 

City 
or 
Town.. 


.  .County. . . 


If  the  company  has  no  real  or  tangible 
personal  property  in  this  State  it  should 
give  the  name  of  the  city,  town,  or  incor- 
porated village  where  its  principal  finan- 
cial concerns  are  transacted  within  the 
State  in  panel  1  at  the  right  and  the  word 
"none"  should  be  entered  in  panel  2. 

If  the  company's  entire  real  and  tangi- 
ble personal  property  in  this  State  is  in 
one  city,  or  in  one  town  outside  a  city  or 
incorporated  village,  the  schedules  below 
need  not  be  made,  but  the  name  of  the 
city  or  town,  and  of  the  county  where  lo- 
cated must  be  entered  in  panel  3. 

If  the  company  has  real  or  tangible  personal  property  in  an  incorporated 
village   (or  villages)  in  this  State  the  name  of  such  village  and  the  town 
and  county  where  such  village  is  located  must  be  entered  below,  together 
with  the  value  of  such  property. 
Incorporated  village  of    In  the  town  of        County  of        Personal        Real 


(If  more  space  is  needed  add  a  paster) 

The  values  of  real  and  tangible  personal  property  in  villages  must  be 
distributed  to  the  proper  TOWNS  in  the  table  below.  Do  not  confuse  the 
political  subdivisions  "incorporated  village"  and  "town."  Names  of  ham- 
lets or  postoffices  other  than  incorporated  villages  are  not  wanted. 


358  FORMS 

SCHEDULE   OF   REAL  AND   Tangible   PERSONAL 

PROPERTY  IN  NEW  YORK  STATE  BY 

CITIES  AND  TOWNS 

Real  Real 

Personal,  estate,  estate, 
actual  actual  assessed 
value  value  value 

City  of County  of 

Street  address $ $ $ 

City  of County  of 

Street  address $ $ $ 

City  of County  of 

Street  address $ $ $ 

City  of County  of 

Street  address $ $ $ 

City  of County  of 

Street  address $ $ $ 

City  of County  of 

Street  address $ $ $ 

Town  of County  of $ $ $ 

Town  of County  of 

Town  of County  of 

Town  of County  of 

Town  of County  of 

Town  of County  of 

(If  more  space  is  needed  add  a  paster) 

AFFIDAVIT  OF  PRESIDENT,  VICE-PRESIDENT,  SECRETARY  OR 

TREASURER 


STATE  OF  NEW  YORK, 
COUNTY  OF  . . 


On  this day  of A.   D.    191 . .  . ,  personally  ap- 
peared before  me,  a  Notary  Public  in  and  for  the  County  of 

,  of  the  above  named  company,  who,  being  duly  sworn 

according  to  law,  did  depose  and  say  that  the  foregoing  report  is  just,  true 
and  correct  and  that  it  includes  a  true  statement  of  the  annual  net  income 
of  said  company  for  the  year. 


(Official  title) 
Sworn  to  before  me  the  day  and  year  aforesaid. 


Notary  Public 


FORMS  359 

FORM  3  IT 
PENALTY  NOTICE 

Any  corporation  which  fails  to  make  any  report  required  by  this  article 
shall  be  liable  to  a  penalty  of  not  more  than  five  thousand  dollars  to  be 
paid  to  the  State  to  be  collected  in  a  civil  action,  at  the  instance  of  the 
Commission;  and  any  officer  of  any  such  corporation  who  makes  a  fraudu- 
lent return  or  statement  with  intent  to  defeat  or  evade  the  payment  of  the 
taxes  prescribed  by  this  article  shall  be  liable  to  a  penalty  of  not  more 
than  one  thousand  dollars,  to  be  recovered  by  the  State.  (Tax  Law,  §  216.) 

STATE  TAX  COMMISSION, 
Receiving  stamp 

Form  42. 

CAPITAL  STOCK  REPORT 
For  Year  Ending  October  31,  1918,  of 

No 

Co, 


Report  Due  on  or  before  December 
Duplicate  copy  should  be  kept 
for  your  files.  All  annexed 
statements  must  be  sworn  to 
thereon. 

Corporations  Liable  to  Taxation  Under  Article  IX-A  of  the  Tax  Law 
Should  Not   Make  This  Report. 

This  report  is  not  to  be  made  before  October  31,  1918.  When  completed 
mail  to  State  Tax  Department,  Albany,  N.  Y.,  to  arrive  not  later  than 
December  15,  1918.  (See  penalty  notice.) 

As    of   the    

Company 

I  make  the  following  report  of  such  Company  for  the  year  ending 
October  31,  1918,  pursuant  to  the  provisions  of  Section  192,  Chapter  60  of 
Consolidated  Laws: 

(1)  The  last  preceding  report  made  by  this   Company  to  the   State  of 
New  York  under  the  provisions  of  the  above  acts  was  for  the  year 
ending  October  31,  191... 

( 2 )  Organized   ,  19 . .  . . ,  under  the  laws  of 

(3)  This    Company    began    business    in    the    State    of    New    York    on 

..19.. 


360  FORMS 

(4)  Authorized  capital  stock  of  Company $ 

(5)  Number  of  shares  of  stock  authorized:   Common Preferred. .  • . 

(6)  Number  of  shares  of  stock  issued:  Common Preferred 

( 7 )  Par  value  of  each  share :  Common  $ Preferred,  $ 

(8)  Amount  paid  into  Treasury  of  Company  on  each  share:  Common,  $ 
Preferred,  $ 

(9)  Amount  of  Capital  stock  issued  for  cash  or  property  except  as  in 
(10) $ 

(10)  Amount  of  Capital  stock  issued  for  good  will,   copyrights,  brands, 
patents,    trade-marks,    formulae,    services,    etc.,    other    than    cash    or 
property  as  in   ( 9 ) $ 

(11)  ,       Amount    of    common   stock   on   which    dividends   were   de- 
,g'goo          clared $ 

(12)  £  u  j*   Amount  and  date  of  each  dividend  on  common  stock 

(13)  1  g>^    Rate  per  cent  per  annum  of  dividends  on  common  stock. . . . 

(14)  M'CJ>    Amount  of  preferred  stock  on  which  dividends  were  declared 

$ 

(15)  •'H'S0    Amount  and  date  of  each  dividend  on  preferred  stock 

(16)  g.2  g    Rate  per  cent  per  annum  of  dividends  on  preferred  stock. .  . . 

( 17)  Net  corporate  income  for  the  last  fiscal  or  calendar  year $. .  . . 

(18)  Nature  of  business  in  State  of  New  York  and  how  transacted 

(19)  (a)    Place,  street  and  number  where  such  business  is  conducted. .  . . 
(b)   Where  will  mail  reach  the  Company? 

(Place,  street  and  number) 

(20)  Give  the  exact  location  where  this  corporation  maintained  any  store, 

warehouse,  factory  or  place  of  business  outside  the  State  of  New 
York    

(21)  Highest  bona  fide  price  at  which  stock  sold  during  the  year  ending 

October  31,  1918 Preferred,  $ Common,  $ 

(22)  Lowest  bona  fide  price   at  which   stock   sold   during  year   ending 

October  31,  1918 Preferred,  $ Common,  $ 

All  amounts  inverted  below  should  be  for  the  year  ending  October  31,  1918 

FOREIGN  and  DOMESTIC  corporations  must  answer  all  paragraphs 
24-37  inclusive.  Property  classified  under  paragraph  10,  page  i, 
should  not  appear  below. 

IN    NEW   YORK    STATE. 

(23)  Average  value  of  stock  in  trade  carried  during  the 

year $ 

(24)  Average  monthly  bank  and  cash  balance  employed 

during  the  year $ 

(25)f  Average    value    of    bills    and    accounts    receivable 

during  the  year $ 


FORMS  361 

(26)*  Average  cash  vafue  of  shares  of  stocks  of  other  cor- 
porations doing  business  in  the  State  of  New  York 
and  owned  by  this  Company  during  the  year $ 

(27)$  Average  value  of  bonds,  loans  on  call  and  other  finan- 
cial securities  held,  used  or  employed  in  New  York 
during  the  year $ 

(28)  Average   value   of   all   personal   property   other   than 

heretofore  mentioned  during  the  year $ 

(29)  Average  gross  actual  value  of  real  estate  located  in 

the  State  of  New  York  and  owned  by  this  Company 

during  the  year $ 

(29a)   Average  assessed  value  of  above  real  estate $ 

Location 

Location 

Location 

OUTSIDE    NEW    YORK    STATE 

(30)  Average  value  of  stock  in  trade  carried  during  the 

year $ 

(31)  Average  monthly  bank  and  cash  balance  employed 

during  the  year $ 

(32)f  Average    value    of    bills    and    accounts    receivable 

during  the  year $ : 

( 33 )  *  Average  cash  value  of  shares  of  stocks  of  other  cor- 

porations owned  by  this  corporation  where  such 
corporations  are  doing  business  wholly  without  the 
State  of  New  York $ 

( 34 )  $  Average  value  of  bonds,  loans  on  call  and  other  finan- 

cial securities  held,  used  or  employed  outside  the 

State  of  New  York  during  the  year $ 

(35)  Average    value    of    personal    property,    other     than 

heretofore  mentioned  during  the  year $ 

(36)  Average  gross  actual  value  of  real  estate  located 

outside  the  State  of  New  York  and  owned  by  this 

Company  during  the  year,  and  where  situated $ 

(36a)   Average  assessed  value  of  above  real  estate $ 

Location 

Location 

Location 

(In  stating  location,  city  or  village  or  town  must  be  given,  with  street  and 

number ) 
Total  of  assets  above  enumerated  located  in  the  State  of  New  York 

during  the  year  ending  October  31,  1918 $ 

Total  of  assets  above  enumerated  located  outside  the  State  of  New 

York  during  the  year  ending  October  31,  1918 $ 

The  word  "average"  wherever  it  appears  in  this  report  has  its  plain, 
ordinary  significance;  neither  the  highest  amount  nor  the  lowest,  but  the 


362  FORMS 

mean.  The  same  method  employed  in  determining  average  assets  should 
be  used  in  determining  average  liabilities. 

f  Bills  and  accounts  receivable  are  generally  located  at  the  place  from 
which  the  goods  are  shipped,  provided  the  corporation  there  maintains  at 
its  own  expense  a  place  of  business,  including  a  store  or  warehouse.  The 
residence  of  the  debtor  is  of  no  importance. 

*  In  answering  Nos.  25  and  32,  if  the  assets  of  the  company  whose  stock 
is  owned  by  your  corporation  are  employed  both  "In"  and  "Outside"  New 
York,  an  apportionment  of  your  holdings  may  be  made  on  the  basis  of 
employment. 

J  Assets  in  Nos.  26  and  33  should  be  considered  as  located  wherever  the 
same  are  held. 

(37)  AVERAGE  LIABILITIES: 

Bonds  not  secured  by  mortgage,  average $ 

Mortgages,    average $ 

Bills  payable,  average $ 

Accounts  payable,  average $ 

Other  liabilities,  not  including  capital  stock, 

average  as  explained  below $ 

Total  average  liabilities $ 

(38)  Percentage  of  total  assets  of  the  Company  employed  in  manufac- 

turing by  the  Company  in  the  State  of  New  York  during  the  year 
ending  October  31,  1918,  and  in  the  sale  of  the  products  so 
manufactured  

(39)  Are  goods   handled   by   you   manufactured   for   you   by  othera   or 

bought  for  sale  ? 

(40)  Do  you  operate  a  factory? If  so,  where? 

REMARKS. 


FOEMS  363 


Officers  Names: 

President,       Secretary, 

Vice-President,       Treasurer. 

The  undersigned,  being  the of  the  above 

Company,   estimates  and   appraises   the   Capital   Stock   of   said 
Company  as  follows: 

shares  at dollars 

cents  per  share,  amounting  in  the  whole  to 

..100  dollars 


In  Witness  Whereof,  I  have  set  my  hand  this , 

day  of ,    191 


(Official  title) 

[Over] 

Note. — Corporations  paying  six  or  more  than  six  per  centum  on  their 
ENTIRE  issued  capital  stock  need  not  appraise  their  capital  stock;  all 
others  must  appraise. 


STATE  OF  NEW  YORK, 
County  of ..      *8*':  26'5' 


On  this day  of A.  D.  191 . .,  personally 

appeared  before  me,  a  Notary  Public  in  and  for  the  County  of 

,  of  the  above  named  Company,  who,  being 

duly  sworn  according  to  law,  did  depose  and  say  that  the  foregoing  report 
is  just,  true  and  correct  and  that  it  includes  all  dividends  of  any  descrip- 
tion declared  by  said  Company  during  the  year  ending  October  31,  1917, 
and  that  he  has,  according  to  his  best  knowledge  and  belief,  appraised  the 
Capital  Stock  of  the  Company  as  provided  by  statute,  at  not  less  than  the 
average  price  at  which  it  sold  and  not  less  than  the  difference  between  its 
assets  and  liabilities,  exclusive  of  capital  stock. 


Sworn  to  before  me  the  day  and  year  aforesaid. 

Notary  Public. 


364  FORMS 

PENALTY    NOTICE. 

Every  corporation,  association,  joint-stock  company,  person  or  partner- 
ship failing  to  make  the  annual  report  required  by  this  article,  or  failing 
to  make  any  special  report  required  by  the  commission,  within  any  reason- 
able time  to  be  specified  by  the  commission  shall  forfeit  to  the  people  of 
the  state  the  sum  of  one  hundred  dollars  for  every  such  failure,  and  the 
additional  sum  of  ten  dollars  for  each  day  that  such  failure  continues. 
(Tax  Law,  section  197.) 


TABLE  OF  CASES 

PAGE 

American  Printing  Com.  v.  Commonwealth  of  Mass,  120  N.  E.  686 87 

Bartlett  v.  City  of  N.  Y.,  5  Sanford  44 203 

Bells  Gap  Co.  v.  Pennsylvania,  134  U.  S.  32 108 

Binghamton  Trust  Co.  v.  Binghamton,  72  A.  D.  341 61 

Blackstone  v.  Miller,  188  U.  S.  189 196 

Brown  v.  Commonwealth,  98  Va.  366 30 

Burr   v.   Palmer,   53   A.   D.   358 71 

Carson  v.  Maryland,  120  U.  S.  502 17 

Central  Trust  Co.  v.  N.  Y.  C.  &  H.  K.  R.  Co.,  110  N.  Y.  250 71-111 

Central  Trust  Co.  v.  Third  Ave.  R.  Co.,  186  Fed.  291 72 

Chae  Chang  Ping  v.  U.  S.,  130  U.  S.  581 195 

Champion  Copper  Co.  v.  Massachusetts,  246  U.  S.  147 93 

Cheney  Bros.  v.  Massachusetts,  246  U.  S.  147 92 

City  of  N.  Y.  v.  McLean,  170  N.  Y.  374 169 

Commonwealth  v.  Pa.  R.  R.  Co.,  94  Pa.  474 117 

Cohen,  Hyman,  v.  John  Z.  Lowe,  June   14,  '16 287 

Cooley  on  Taxation,  3rd  Ed.  459 30 

Crenshaw  v.  Arkansas,  227  U.  S.  389 92 

Crew  Levick  Co.  v.  Pennsylvania,  245  U.  S.  292 96 

In   re    Crilly,    13   App.    Div.    247 202 

Cudahy  Packing  Co.  v.  Minnesota,  246  U.  S.   450 93 

Dalton  Adding  Machine  Co.  v.  Virginia,  246  U.  S.  498 92 

Douglas  v.  The  Mayor,  2  Duer  110 203 

Doyle  v.  Mitchell  Bros.  Co.,  247  U.  S.  179 265 

Ducat   v.    Chicago,    10    Wall    410 22 

Dunbarton  Flax  Spinning  Co.  v.  G.  &  J.  R.  Co.,  87  A.  D.  21 21 

Emmerich  v.  Sloan,  108  A.  D.  330 20 

Flint  v.  Stone  Tracy  Co.,  220  U.  S.  107 91-95 

Fong  Yue  Ting  v.  U.  S.,  149  U.  S.  968 195 

Foster  Pump  Works  v.  The  Mayor,  100  A.  D.  515 169 

Frost  v.  Brisbin,  19  Wend.  11 202 

General  Railway  Signal  Co.  v.  Va.,  246  U.  S.  500 93 

Green  v.  Railway  Co.,  205  U.  S.  530 91 

365 


366  TABLE   OF   CASES 

PAGE 

Halsey  v.   Jewett   Dramatic   Co.,    114   A.   D.   420 19 

Hamilton  Wheel  Co.  v.  Commissioners,  12  W.  N.  C.  328 157 

Hardenbergh's  Decisions  under  Acts  of  Pennsylvania,  131 157 

Harvard  Co.  v.  Wicht,  99  A.  D.  507 21 

Hawkins  v.  The  Mayor,  64  id.   18 131 

Herkimer  Co.  Light  &  Power  Co.  v.  Johnson,  37  A.  D.  257 123 

Home  Ins.  Co.  v.  N.  Y.,  134  U.  S.  594 40 

Horn  Silver  Mining  Co.  v.  N.  Y.,  143  U.  S.  305 11 

International  Harvester  Co.  v.  Kentucky,  234  U.  S.  579 91 

International  Paper  Co.  v.  Mass.,  246  U.  S.  135 93 

International  Text  Book  Co.  v.  Begg,  217  U.  S.  92 92 

Kinney  v.  Reid  Ice  Cream  Co.,  57  A.  D.  208 19 

Lanston  Monotype  Case,  246  U.  S.   147 93 

Lathers  v.  Keogh,  105  N.  Y.  583 71 

Locomobile  Co.  v.  Massachusetts,  246  U.  S.  146 93 

Looney  v.   Crane,  245  U.   S.   178 93 

Lynch  v.  Hornby,  247  U.  S.  339 265 

Lynch  v.  Turrish,  247  U.  S.  221 265 

McCall  v.  California,  136  U.  S.  104 92 

McLean,  Receievr  of  Taxes,  v.  Julian  Elec.  Co.,  28  Abb.  N.  C.  349 99 

Macomber  v.  Eisner,  U.  S.  Dist.  Ct.   (So.  Dist.  N.  Y.),  Jan.  23,  1919. .  232 

Maine  v.  Grand  Trunk  Railway,  142  U.  S.  217 50 

Matter  of  Carnegie  Trust  Co.,  206  N.  Y.  398 72 

Matter  of  Consolidated  Kansas  City  Smelting  Co.,  13  A.  D.  50 13 

Matter  of  Crilly,  13  A.  D.  247 202 

Matter  of  Estate  of  Hetty  Green,  99  Mis.  582 200 

Matter  of  Maltbie  v.  Lobsitz  Mills  Co.,  223  N.  Y.  230 169 

Matter   of  Maltbie  v.  N.   Y.   &  Philadelphia   Coal  &  Coke  Co.,  223 

N.  Y.  633   169 

Matter  of  Nichols,  5  N.  Y.  64 204 

Matter  of  O'Berry,  179  N.  Y.  285 181 

Matter  of  Tiffany  &  Co.,  80  Hun  486 47 

Matter  of  Waterman  Co.  v.  Gilman,  33  Misc.  569 181 

Myer  v.  Wells  Fargo  &  Co.,  223  U.  S.  298 93 

N.  Y.  Edison  Co.  v.  Wells,  135  A.  D.  644 124 

N.  Y.  Terminal  Co.  v.  Gaus,  204  N.  Y.  512 72 

N.  Y.  Terra  Cotta  Co.  v.  Williams,  102  A.  D 100 

Northwestern  Consolidated  Milling  case,  245  U.  S.  644 93 

Novelty  Mfg.  Co.  v.  Connell,  88  Hun  254 21 


TABLE   OF   CASES  367 

PAGE 

Osborne  v.  Mobile,  16  Wall  479 51 

Overing  v.  Foote,  65  N.  Y.  263 127 

Pacific  Express  Co.  v.  Seibert,  142  U.  S.  339 51 

Parmele  v.  Haas,  171  N.  Y.  579 19-20 

Peabody  v.  Eisner,  247  U.  S.  347 233 

Peck  &  Co.  v.  Lowe,  247  U.  S.  165  (May,  1918) 96 

People  v.  Albany  Ins.  Co.,  92  N.  Y.  460 68 

People  v.  Amer.  Bell  Telephone  Co.,  117  N.  Y.  241 48 

People  v.  Barker,  141  N.  Y.  586 195 

People  v.  Campbell  &  Roberts,  88  Hun  545 43 

People  v.  Gold  &  Stock  Tel.  Co.,  98  N.  Y.  67 167 

People  v.  Spring  Valley  Hydraulic  Gold  Co.,  92  N.  Y.  383 67 

People  v.  Sohmer,  207  N.  Y.  272 53 

People  v.  Thames  &  Mersey  Marine  Ins.  Co.,  176  N.  Y.  531 58 

People  ex  rel.  A.  C.  &  D.  Co.  v.  Wemple,  129  N.  Y.  558 179 

People  ex  rel.  American  Axe  &  Tool  Co.  v.  Roberts,  82  Hun  313 69 

People  ex  rel.  American  Bank  Note  Co.  v.  Sohmer,  157  A.  D.  1 30-37 

People  ex  rel.  Amer.  Broom  &  Brush  Co.  v.  Knapp,  A.  D.  Apr.,  1919.  22 
People  ex  rel.  American  Contracting  Co.  v.  Wemple,  60  Hun  225 ....  46-47 

People  ex  rel.  American  Surety  Co.  v.  Campbell,  74  Hun  101 43 

People  ex  rel.  Armstrong  Cork  Co.  v.  Commissioners,  157  N.  Y.  159.  18 

People  ex  rel.  Astor  v.  Tax  Commsrs.,  33  Misc.  358 204 

People  ex  rel.  Automatic  Vending  Co.  v.  Kelsey,  101  A.  D.  325 40 

People  ex  rel.  Badische  Anilin  &  Soda  Fabrik  Co.  v.  Roberts,  152 

N.  Y.  59  47 

People  ex  rel.  Bank  for  Savings  v.  Miller,  177  N.  Y.  461 63 

People  ex  rel.  Barcalo  Mfg.  Co.  v.  Knapp,  A.  D.  Apr.,  1919 89 

People  ex  rel.  Brooklyn  City  R.  R.  Co.  v.  Assessors  of  Brooklyn, 

92  N.  Y.  430 127 

People  ex  rel.  Brooklyn  El.  R.  R.  Co.  v.  Roberts,  90  Hun  537 37 

People  ex  rel.  B.  R.  T.  Co.  v.  Morgan,  57  A.  D.  335 37-61-114 

People  ex  rel.  Brooklyn  Union  Gas  Co.  v.  Morgan,  114  A.  D.  266 54 

People  ex  rel.  Brush  El.  Mfg.  Co.  v.  Wemple,  129  N.  Y.  543 46 

People  ex  rel.  Central  Park,  etc.,  R.  R.  v.  Tax  Commrs.,  21  N.  Y.  St. 

R.  358  179 

People  ex  rel.  Chicago  Junction  Railway  Co.  v.  Roberts,  154  N.  Y.  1 . 45-48 

People  ex  rel.  Cohen  &  Co.  v.  Miller,  94  A.  D.  564 37-114 

People  ex  rel.  Colonial  Trust  Co.  v.  Morgan,  47  A.  D.  126 38 

People  ex  rel.  Commercial  Cable  Co.  v.  Morgan,  178  N.  Y.  433 8-42 

People  ex  rel.  Coney  Island  Jockey  Club  v.  Sohmer,  140  N.  Y.  Supp. 

507  42 

People  ex  rel.  Conn.  Mutual  Life  Ins.  Co.  v.  Kelsey,  116  A.  D.  97.. 56-59 


368  TABLE  OF   OASES 

PAGE 

People  ex  rel.  Consol.  Ginseng  Co.  v.  Kelsey,  182  N.  Y.  526 16 

People  ex  rel.  Continental  Ins.  Co.  v.  Miller,  177  N.  Y.  515 59 

People  ex  rel.  Cornell  Steamboat  Co.  v.  Sohmer,  206  N.  Y.  651 51 

People  ex  rel.  C.  T.  R.  Co.  v.  Miller,  178  N.  Y.  194 51 

People  ex  rel.  Dann  v.  Williams,   36  N.  Y.  441 179 

People  ex  rel.  Dunkirk,  etc.,  Ry.  Co.  v.  Campbell,  74  Hun  210 50 

People  ex  rel.  Dutilh  Smith  Co.  v.  Miller,  90  A.  D.  545 16-21 

People  ex  rel.  Edison  Co.  v.  Kelsey,  101  A.  D.  205 48 

People  ex  rel.  Edison  Elec.  111.  Co.  v.  Wemple,  61  Hun  53 40-46 

People  ex  rel.  Edison  Elec.  Light  Co.  v.  Campbell,  138  N.  Y.  543 49 

People  ex  rel.  Elliott-Fisher  Co  .v.  Sohmer,   148  A.  D.  514 16 

People  ex  rel.  Eppens  Co.  v.  Roberts,  51  A.  D.  152 161 

People  ex  rel.  Fed.  Tel.  &  Telegr.  Co.  v.  Longwell,  131  N.  Y.  Supp. 

361     123 

People  ex  rel.  Fifth  Ave.  Bldg.  Co.  v.  Williams,   198  N.  Y.  242 41-42 

People  ex  rel.  Fort  George  Co.  v.  Miller,  179  N.  Y.  49 41 

People  ex  rel.  Fourteenth  Str.  Realty  Co.  v.  Kelsey,  110  A.  D.  797..     42 

People  ex  rel.  Gen.  Chemical  Co.  v.  Cantor,  105  Misc.  62 124 

People  ex  rel.  Genesee  Light  &  Power  Co.  v.  Sohmer,  162  A.  D.  207 . .     54 

People  ex  rel.  Genesee  Light  &  Power  Co.  v.  Saxe,  179  A.  D.  417 54 

People  ex  rel.  Gould  v.  Barker,  14  Misc.  586 204 

People  ex  rel.  Gramercy  Co.  v.  Roberts,  91  Hun,   146 179 

People  ex  rel.  Harlin  &  H.  Co.  v.  Campbell,  139  N.  Y.  68 45-48 

People  ex  rel.  Hoyt  v.  Tax  Commissioners,  23  N.  Y.  244 91 

People  ex  rel.  Hyde  &  Sons  v.  Miller,  90  A.  D.  599 38-39 

Pe'ople  ex  rel.  A.  G.  Hyde  &  Sons  v.  O'Donnell,  116  A.  D.  161 116 

People  ex  rel.  Hubert  Apt.  Assn.  v.  Kelsey,  110  A.  D.  618 41 

People  ex  rel.  Interboro  R.  T.  Co.  v.  Williams,  200  N.  Y.  93 53 

People  ex  rel.  International  Elevator  Co.  v.  Roberts,  116  A.  D.  30...     46 

People  ex  rel.  International  Text  Bbok  Co.  v.  Begg,  217  U.  S.  92 92 

People  ex  rel.  International  Text  Book  Co.  v.  Tone,  220  N.  Y.  313.21-22-91 

People  ex  rel.  Iroquois  Door  Co.  v.  Knapp,  173  N.  Y.  Supp.  641 129 

People  ex  rel.  J.  B.  Co.  v.  Roberts,  37   A.  D.    1 37-38 

People  ex  rel.  Jerome  Pk.  Villa  Site  Impr.  Co.  v.  Roberts,  41  A.  D.  21     39 

People  ex  rel.  Johnson  Co.  v.  Roberts,  159  N.  Y.  70 38-46 

People  ex  rel.  John  Turl's  Sons  v.  O'Donnell,  N.  Y.  Law  Jn'l,  June 

27,    1905    161 

People  ex  rel.  Joline  v.  Willcox,  129  App.  Div.  267 46 

People  ex  rel.  Joline  v.  Willcox,  134  App.  Div.  563 47 

People  ex  rel.  Journeay  &  Burnham  Co.  v.  Roberts,  37  A.  D.   1....    116 
People  ex  rel.  A.  M.  Kellogg  Newspaper  Co.  v.  Roberts,  30  A.  D.  150.     47 

People  ex  rel.  Keochl  &  Co.  v.  Morgan,  96  A.  D.  110 40 

People  ex  rel.  Kingsland  v.  Palmer,  52  N.  Y.  83 131 


TABLE  OF  OASES  369 

PAGE 

People  ex  rel.  Knickerbocker  Trust  Co.  v.  Kelsey,  114  A.  D.  319 181 

People  ex  rel.  Lehigh  &  N.  Y.  R.  R.  Co.  v.  Sohmer,  217  N.  Y.  443.  .27-100 

People  ex  rel.  Lester  v.  Eno,  176  N.  Y.  513 178 

People  ex  rel.  Lincoln  Trust  Co.  v.  Glynn,  132  A.  D.  546 61 

People  ex  rel.  Lorena  Co.  v.  Morgan,  55  A.  D.  265 37 

People  ex  rel.  Lord  v.  Feitner,  78  A.  D.  287 203 

People  ex  rel.  Lorillard  v.  Barker,  70  Hun  397 204 

People  ex  rel.  McCofd  v.  Cantor,  Sup.  Ct.  N.  Y.  Co 81 

People  ex  rel.  McNeary  v.  McLean,  64  Hun  205 46 

People  ex  rel.  Manhattan  R.  R.  Co.  v.  Commissioners,  146  N.  Y.  304.  115 

People  ex  rel.  Martin  v.  Feitner,  33  Misc.  358 204 

People  ex  rel.  Mercantile  S.  D.  Co.  v.  Sohmer,  158  A.  D.  110 36-39 

People  ex  rel.  Metropolitan  S.  Co.  v.  Kelsey,  101  A.  D.  248 69 

People  ex  rel.  Metropolitan  Street  Ry.  -  Co.  v.  Tax  Commrs.,  174 

N.  Y.  417  190,  193 

People  ex  rel.  Miller  v.  Peck,  73  App.  Div.  89 47 

People  ex  rel.  Mutual  Trust  Co.  v.  Miller,  177  N.  Y.  51 37-61-114 

People  ex  rel.  Nat'l  Enameling  Co.  v.  Miller,  112  A.  D.  880 16-38 

People  ex  rel.  Nat'l  Starch  Co.  v.  Waldron,  26  A.  D.  527 123 

People  ex  rel.  N.  Eng.  Dressed  Meat  &  Wool  Co.  v.  Roberts,  155  N.  Y. 

408  162 

People  ex  rel.  N.  E.  Loan  &  Investing  Co.  v.  Roberts,  25  A.  D.  16 ...  46 

People  ex  rel.  N.  Y.  Realty  Co.  v.  Miller,  92  App.  Div.  116 177,  178 

People  ex  rel.  N.  Y.  &  E.  R.  Ferry  Co.  v.  Roberts,  168  N.  Y.  14 28 

People  ex  rel.  N.  Y.  C.  &  H.  R.  R.  Co.  v.  Gaus,  200  N.  Y.  328 36 

People  ex  rel.  N.  Y.  C.  &  H.  R.  R.  Co.  v.  Knight,  173  N.  Y.  255 39 

People  ex  rel.  N.  Y.  C.  &  H.  Riv.  R.  R.  v.  Morgan,  168  N.  Y.  1 52 

People  ex  rel  N.  Y.  C.  &  H.  Riv.  R.  R.  v.  Roberts,  32  A.  D.  113 52 

People  ex  rel.  N.  Y.  Edison  v.  Feitner,  99  A.  D.  274 123 

People  ex  rel.  N.  Y.  Mail  &  Transp.  Co.  v.  Gaus,  198  N.  Y.  250 29-31 

People  ex  rel.  Niagara  Falls  Co.  v.  Russell,  57  Hun  53 181 

People  ex  rel.  Niagara  R.  Hydraulic  Co.  v.  Roberts,  30  A.  D.  180 40 

People  ex  rel.  N.  Am.  Trust  Co.  v.  Knight,  96  A.  D.  120 39 

People  ex  rel.  Osgood  v.  Tax  Commsrs.,  99  N.  Y.  154 179 

People  ex  rel.  Parke,  Davis  &  Co.  v.  Roberts,  91  Hun  158 17 

People  ex  rel.  Pa.  R.  R.  Co.  v.  Tax  Commsrs.,  104  N.  Y.  240 179 

People  ex  rel.  Pa.  R.  R.  v.  Wemple.  65  Hun  252 45 

People  ex  rel.  Pa.  R.  R.  v.  Knight,  67  A.  D.  398 46 

People  ex  rel.  Platt  v.  Wemple,  117  N.  Y.  136 43 

People  ex  rel.  Port  Morris  Land  &  Improve.  Co.  v.  Glynn,  205 

N.  Y.  578  39 

People  ex  rel.  Postal  Tel.  Co.  v.  Campbell,  70  Hun,  507 43 

People  ex  rel.  Pres.,  etc.,  D.  &  H.  Canal  Co.,  54  Hun  598 38 


370  TABLE   OF   CASES 

PAGE 

People  ex  rel.  Provident  S.  L.  A.  Soc.  v.  Miller,  179  N.  Y.  227 59 

People  ex  rel.  Pullman  Co.  v.  Glynn,   130  A.  D.   332 39 

People  ex  rel.  Kees'  Sons  v.  Miller,  90  A.  D.  592 37-43-114 

People  ex  rel.  Rockefeller  v.  O'Brien,  224  Fed.  541 202 

People  ex  rel.  Roebling's  Sons  Co.  v.  Wemple,  138  N.  Y.  582 179 

People  ex  rel.  Schurz  v.  Cook,  110  N.  Y.  443 13 

People  ex  rel.  Schurz  v.  Mertens,   110  N.  Y.  443 13 

People  ex  rel.  Second  Ave.  R.  R.  Co.  v.  Barker,  72  Hun  126 121 

People  ex  rel.  Seth  Thomas  Clock  Co.  v.  Wemple,  133  N.  Y.  323 179 

People  ex  rel.  Singer  Mfg.  Co.  v.  Wemple,  150  N.  Y.  46 40 

People  ex  rel.  Smith  v.  Roberts,  27  A.  D.  455 47 

People  ex  rel.  Southern  Cotton  Oil  Co.  v.  Roberts,  25  A.  D.   13 47-92 

People  ex  rel.  Southern  Cotton  Oil  Co.  v.  Wemple,  61  Hun  83 17 

People  ex  rel.  Spencerian  Pen  Co.  v.  Kelsey,  105  A.  D.   133 40 

People  ex  rel.  Staten  I.  R.  R.  v.  Roberts,  4  App.  Div.  334 178 

People  ex  rel.  F.  A.  Stokes  Co.  v.  Roberts,  90  Hun  533 71 

People  ex  rel.  Strong  v.  O'Donnell,  47  Misc.  226 203 

People  ex  rel.  Studebaker  Co.  v.  Knight,  66  A.  D.  150 161 

People  ex  rel.  Town  of  Pelham  v.  Pelham,  215  N.  Y.  374 193 

People  ex  rel.  Union  Pacific  Tea  Co.  v.  Roberts,   145  N.  Y.  375 178 

People  ex  rel.  Union  Trust  Co.  v.  Coleman,  126  N.  Y.  433 121 

People  ex  rel.  U.  S.  Aluminum  Plate  Co.  v.  Knight,  174  N.  Y.  475. .  .40-46 

People  ex  rel.  Vandervoort  v.   Glynn,    194  N.   Y.   387 42 

People  ex  rel.  Waclark  R.  Co.  v.  Williams,  198  N.  Y.  54 42 

People  ex  rel.  Wall  &  H.  St.  Realty  Co.  v.  Miller,  181  N.  Y.  328. ...     41 

People  ex  rel.  Washington  Mills  v.  Roberts,  8  A.  D.  201 47 

People  ex  rel.  Westchester  L.  Co.  v.  Gaus,  199  N.  Y.  147 54 

People  ex  rel.  West  F.  I.  Co.  v.  Davenport,  91  N.  Y.  574 179 

People  ex  rel.  Western  Co.  v.  Campbell,  145  N.  Y.  587 179 

People  ex  rel.  Western  El.   Co.  v.   Campbell,  80  Hun  466 179 

People  ex  rel.  Wiebusch  &  Hilger  Co.  v.  Roberts,  19  A.  D.  574 37-42 

People  ex  rel.  Williams  v.  Sohmer,  151  A.  D.  764 43 

People  ex  rel.  Wright  v.  O'Rourke,  32  A.  D.  66 203 

Philadelphia  Fire  Ins.  Co.  v.  N.  Y.,  119  U.  S.  110 22 

Phila.  Read.  R.  R.  Co.  v.  Commissnrs.,  104  Pa.  86. 157 

Philadelphia  &  S.  S.  Co.  v.  Pennsylvania,  122  U.  S.  326 ...T."  ~$5 

Postal  Tel.  Cable  Co.  v.  Adams,  155  U.  S.  688 96 

Postal  Tel.  Co.  v.  Charleston,  153  U.  S.  692 51 

Reading  R.  R.  v.  Pennsylvania,   15   Wall  284 51 

Reedy  Elevator  Co.  v.  Amer.  Grocery  Co.,  24  Misc.  678 19-21 

Robbins  v.  Shelby  County  Taxing  District,  120  U.  S.  489 17 


TABLE  OF  OASES  371 

PAGE 

San  Francisco  F.  L.  Co.  v.  Banbury,  106  Cal.  129 30 

Savage  v.  Atlanta  Home  Ins.  Co.,  55  A.  D.  20 92 

Shaffer  v.  Howard,  250  Fed.  Rep.  874 197 

Southern  Pacific  Co.  v.  Lowe,  247  U.  S 67 

State  v.  Wisconsin  Tax  Comrn.,   161   Wise.    Ill 195 

State  ex  rel.  Ashbrook,  154  Mo.  375 108 

State  ex  rel.  Bolens  v.  Frear,  148  Wis.  456 191 

State  ex  rel.  Daniels  v.  Hussy,   143   Wise.,  649 191 

State  Tax  on  Foreign  Held  Bonds,  15  Wall  300 9 

Sweet  v.  The  All-Package  Grocery  Stores  Co.,  N.  Y.  Law  Jnl.,  Apr. 

25,   1919    72 

Tanza  v.  Susquehanna  Coal  Co.,  220  N.  Y.  259 91 

Towne  v.  Eisner,  245  U.   S.   418 233 

Underwood  Typewriter  Co.  v.  Chamberlain,  102  Atlantic  600 98 

U.  S.  Glue  Co.  v.  Town  of  Oak  Creek,  161  Wis.  211 94-110 

U.  S.  ex  rel.  Turner  v.  Williams,  194  U.  S.  279 195 

Watson  v.  City  of  Kingston,   114  id.  94 131 

Welsbach  v.  Norwich  Gas  Co.,  96  A.  D.  52 18-19 

Western  Union  Tel.  Co.  v.  Kansas,  216  U.  S.  27 22 

White  Co.  v.  Massachusetts, 93 

Wilson,  McNeil  Co.  v.  Standard  Oil  Co.,  110  A.  D.  888 19 

Wise  v.  Wise  Co.,  153  N.  Y.  507 72 

Wood  &  Sellick  Co.  v.  Ball,  114  A.  D.  744 . .  19-20 


INDEX  TO  CORPORATION  TAXES  (PARTS  I,  II,  III) 

Accounting  (See  "bookkeeping")  PAGE 

Action  for  recovery  of  taxes  (9-a) 146,  166 

Agricultural  and  horticultural  companies  exempt  from  Section  182...  24 

Allocation  of  stock  in  report 102 

Amendments  of  1919.  to  business  corporations  tax   (Art.  9-a) 77 

Appeal  from  determination  in  certiorari 179 

Application  for  revision 158 

Apportionment  of  tax  under  Article  9-a 116 

between  states,  cities,  towns  and  villages  under  9-a 132,  139 

revenue  collected  under  9-a 147 

Assignees  to  file  report Ill 

Audit  and  statement  of  tax 143 

Average  capital  and  price  how  ascertained   (Art.  9) 37 

monthly  values  how  ascertained  (Art.  9-a) 114 

Bankers   (See  foreign  bankers) 

Banks,  savings  banks,  etc.,  exempt  from  Section  182 24 

Bells  Gap  Company  case 108 

Bookkeeping  methods  for  arriving  at  net  income 112 

Book  value  (See  value) 

Burden  of  proof  is  on  the  relator  in  certiorari 179 

Business  corporations  tax   (Art.  9-a) ,  amendments  to 77 

are  subject  to  tax  under  9-a 81 

constitutionality  of    83 

Business    ( See  Doing  business) 91 

Canal  companies  taxable  under  Section  182 23 

Certiorari,  general  purpose  of  law  as  to  writ  of 171 

provisions  of  tax  law  as  to  writ 172 

deposit  of  taxes  with  state  comptroller 173 

undertaking  to  be  filed  in 174 

code  provisions  applicable  to 174 

general  provisions    175 

the  relator 175 

time  limit  for  application 175 

application  for  rehearing  a  prerequisite  of 176 

373 


374  INDEX  TO  CORPORATION  TAXES 

PAGE 

petition  in    177 

return    177 

further  return   178 

appeal  from  determination  in 179 

burden  of  proof  is  on  the  relator  in 179 

costs  in  180 

reassessment  commission  if  held  erroneous  on  appeal  in 180 

corporations  estopped  by 181 

Changes  in  Federal  report,  corporation  to  notify  commission  of 144 

Charter  forfeiture  by  delinquent  corporation    (9-a) 146 

of  delinquent  corporation  forfeited 166 

Coal  company,  segregation  of  assets 105 

Code  of  Civil  Procedure  does  not  apply  to  limitation  of  time  (9-a)  ...  151 

Collection  of  taxes  by  warrant   (9-a) 145 

Commission  corporation,  segregation  of  assets 106 

Comptroller  may  refund  under  1919  Act 79,  128 

shall  deposit  revenue  collected  under  9-a 146 

Computation  of  tax  under  Art.  9-a 117 

Connecticut  Act  permits  deduction  of  Excess  Profits  Tax 87 

Income  Tax    96 

Consolidated  corporations  taxed  under  9-a 141 

Constitutionality   of   tax   on   gross  earnings    on    transportation    com- 
panies      51 

business  corporations  tax  (Art.  9-a) 83 

Contracting  corporation,  segregation  of  assets 106 

Copyrights,  valuation  of  under  §   182,  Art.  9 40 

Corporations  exempt  from  taxation  under  Art.  9-a 136 

Corporation  includes  a  joint  stock  company  or  association 136 

Correspondence  School  is  not  "Doing  Business" 92 

Costs  in  certiorari   180 

Cotton  converting  corporation,  segregation  of  assets 104 

Credit  to  be  given  to  corporation  for  state  bonds 62 

to  corporations  for  personal  taxes  paid  in  1917-18 125 

by  corporations  paying  taxes  1917-18  under  Art.  9-a 150 

for   excess  taxes 160 

Debts  to  be  deducted  in  assessing  franchise  tax 37 

Decision  in  People  ex  rel.  Barcola  Mfg.  Co.  v.  Knapp 89 

Deduction  of  excess  profits  tax 85-86 

Definition  of  fixtures ,. .  . .  79 

of  holding   corporation 82 

of  personal   property    80,  151 

of  entire  net  income..  .136 


INDEX  TO  CORPORATION  TAXES  375 

PAGE 

Disposition  or  apportionment  of  revenue  collected  under  9-a 147 

"Doing  Business"  defined  under  Article  9-a 91 

selling  through  a  commission  house  is  not 92 

keeping  a  sales  manager,  with  resident  manager 92 

various  kinds  of  activities  held  to  be 93 

Domestic  Corporations  must  report  under  Art.  9-a  unless  dissolved . .  99 

to  what  extent  taxable  under  Article  9-a 99 

Electric  companies  taxable  under  Sec.  186 53 

Elevated  railroad  and  surface  railroad  companies  exempt  from  Sec.  182  24 

Entire  net  income  defined 77,  136 

taxed  under  1919  amendment 77 

under  1918  Federal  Act  includes  $2,000  exemption 89 

Excess  profits  deduction 85 

passed  on  in  New  York  Court 89 

deducted  under  Connecticut  Act 87 

deducted  under  Massachusetts  Act 87 

Excess  taxes  to  be  refunded 160 

Exemption  from  personal  property  tax  under  Art.  9-a 121,  149 

from  Section  182  (Art.  9)  of  business  corporations,  banks,  savings 
banks,  institutions  for  savings,  title  guaranty,  insurance,  surety 
companies,  trust  companies,  elevated  and  surface  railroad, 
water,  lighting  and  power  companies,  agricultural  and  horti- 
cultural associations  24 

from  tax  under  Article  9-a 82 

(under  Art.  9-a)  of  steam  surface  railroad,  canal,  steamboat,  ferry, 
express,  navigation,  pipe-line,  transfer,  baggage  express,  tele- 
graph, telephone,  palace  or  sleeping  car  corporations 83 

elevated  surface  railroads,  water  works,  gas,  heat,  light  and  power, 

electric  and  steam  companies 83 

insurance  corporations,  trust  companies,  savings  banks 83 

of  fixtures  passed  on  General  Chemical  case 124 

of  school  taxes  under  9-a  not  granted 130 

of  certain  corporations  under  9-a 136 

Express  companies  taxable  under  Section  182 23 

Franchise  tax — when  inaugurated 7 

corporations  subject  to,  under  Section  182,  viz 23 

realty,  holding,  steam-surface,  railroad,  canal,  steamboat,  ferry, 
express,  navigation,  pipe-line,  transfer  and  baggage,  telephone, 

telegraph,  palace-car  companies 23 

exempt  from,  under  Section  182,  viz.,  business  corporations  (manu- 
facturing and  mercantile ) ,  banks,  savings  banks,  and  institu- 


376  INDEX  TO  CORPORATION  TAXES 

PAGH 

tions  for  savings,  title  guaranty,  insurance,  surety  companies 
and  trust  companies,  elevated  and  surface  railroad,  water,  light- 
ing and  power  companies,  agricultural  and  horticultural  asso- 
ciations    24 

text  of  law  §  182 25 

appraisement  of  capital  stock  for 27 

business  corporations  no  longer  taxed  under,  §  182 27 

amendments  of  1906  and   1907  to   §   182 28 

ambiguity  as  to  rate  decided  in  taxpayer's  favor 28 

when  dividends   are   6%   or   more 32 

when  no  dividends  are  declared 32 

when  dividends    are  less  than   6% 34 

under  drag-net  clause 35 

when  there  is  more  thaa  one  kind  of  stock 36 

payable   in  advance 37 

based  on  average  capital  and  average  price 37 

actual  or  intrinsic  value  to  be  ascertained 37 

debts  to  be  deducted 37 

when  not  to  be  deducted 38 

book  value  does  not  govern  assessment  for 38 

good  will  to  be  considered  in  assessment 38 

when  stock  dividend  to  be  considered  in  assessing 39 

when  distribution  and  condemnation  proceedings  considered  for ...  39 

payable  on  U.  S.  securities  if  part  of  capital  stock 40 

payable  on  capital  invested  in  trade  marks  or  patent  rights 40 

payable  on  realfy  corporations 41-42 

realty  corporations    43 

payable  by  joint  stock  associations 43 

on  corporations  having  stock  without  par  value 44 

based  on  net  income  under  9-a. 83,  136 

Fixtures  denned  79,  123 

Fixtures  when  exempted  from  local  tax 122 

Foreign  bankers,  tax  upon 63 

Foreign  corporations 

to  pay  license  tax 14 

when  paid    16 

method  of  computing  license  tax  changed 17 

not  citizens  for  license  tax  purposes 17 

when  liable  for  it 17 

when  barred  from  business  on  failure  to  pay 18 

correspondence  school  when  not  liable  for  tax 21 

not  in  business  thirteen  months  need  not  pay  tax 21 

not  within  jurisdiction  until  certificate  filed 21 


INDEX  TO   COKPORATIOtf   TAXES  377 

PAGE 

soliciting  business  here  when  taxable 46 

return  under   1919  amendment    (Art.  9-a) 77 

when  taxable  under  Article  9-a 91 

when  obliged  to  make  a  report  under  Art.  9-a 100 

Foreign  insurance  companies  subject  to  taxation 58 

Forfeiture  of  charter  by  delinquent  corporation   (9-a) 146,  166 

Gas  companies  taxable  under  §   186 53 

Good  will  to  be  considered  in  assessment  of  franchise  tax  (§  182) 38 

Gross  earnings    ( additional )    taxed,  when  introduced 8 

on  insurance  companies,  trust  companies,  banks,  etc 8 

on  transportation,  transmission,  heat,  light  and  power  companies. .  50 

additional  tax  on,  in  the  nature  of  a  license  fee 51 

constitutionality  of  tax  on 51 

United  States  carriers  not  taxable,  if  they  carry  mails 52 

meaning  of   52 

Gross  premiums  of  insurance  companies  taxable 56 

Heat,  light  and  power  companies  taxable  on  gross  earnings 50 

Holding  corporations  taxable  under  Section  182 23 

exempt     82 

defined     82 

Illustration  of  report  segregating  assets 108 

Import  company,  segregation  of  assets 105 

Instructions  for  preparing  report Ill 

Insurance  companies  exempt  from  Section   182 24 

Insurance  companies  taxed  on  gross  premiums 56 

Interstate  commerce  in  connection  with  local  business 92 

Interest  uncollectible  as  part  of  penalty 167 

Interstate  commerce,  maximum  limit  clause  in  connection  with 93 

Investment  companies  taxable  under  §  188 61 

Joint  stock  associations  taxable  for  franchise  tax 43 

Joint  stock  company  or  association  is  included  in  corporation 136 

License  tax   ( §  181 ),  when  introduced 8 

defined 14 

history  of   14 

text  of   law 15 

when  paid 16 

method  of  computing,  changed 17 

failure  to  pay  bars  corporation  from  State  business 18 

not  payable  until  company  here  thirteen  months 21 


378  INDEX  TO  CORPORATION  TAXES 

PAGE 
fee,  the  additional  tax  on  transportation,  transmission,  heat,  light 

and  power  companies  in  the  nature  of 51 

Lien  of  tax  on  real  and  personal  property 71 

Light  and  power  companies  taxable  on  gross  earnings 50 

Lighting  and  power  companies  taxable  under  §   186 53 

Limitation  of  time  to  assess  or  collection  under  9-a 151 

Limitation  of  time 169 

Local  business  in  connection  with  interstate  commerce 92 

Mail  carrier  companies  not  taxable  on  gross  earnings 52 

Massachusetts  Act  permits  deduction  of  Excess  Profits  Tax .  ^ 87 

Maximum  limit  clause  in  connection  with  interstate  commerce 93 

Merged  or  consolidated  corporations 78,  141 

Minimum  tax  provision 106 

Morris  Plan  companies  taxable  under   §   188-a 62 

Navigation  companies  taxable  under  Section  182 
Net  income   (See  entire  net  income) 

franchise  tax  on  corporations  based  on 83 

what  is 83 

Non-resident,  is  personally  liable  for  tax 168 

Notice  of  statement  of  tax  to  be  sent  corporations 69 

Notice  of  tax  (9-a) 143 

Palace-car  and  sleeping-car  companies  taxable  under  Section  182 

Patent  rights  considered  in  assessing  franchise  tax 40 

Payment  of  personal  taxes  1917-18  is  not  a  contract  with  the  State..  128 

of  tax  and  penalty  for  failure    70 

of  tax    (9-a) 144 

Penalty  for  failure  to  pay  tax  70 

for  failure  to  report  under  Art.  9-a 141,  165 

for  violation  of  secrecy 148,  170 

Personal  liability  of  non-resident  for  tax 168 

property   defined    80,  15 1 

lien  of  tax  under  Art.  9  on 71 

exemption  from  tax  on  under  9-a 122,  149 

Personal  service  corporations  are  now  taxed  under  9-a 81 

taxes  paid  by  corporations  in  1917-18 125 

Petition  for  revision 158 

Place  of  business  of  corporation  outside  the  state  to  be  reported 113 

Powers  and  duties  of  tax  commission   (See  tax  commission) 163 

of  tax  commission 68,  69,  141,  163 

of  comptroller   ,. .  163 

Priority  in  payment  of  State  tax  from  insolvent  estate 71 


INDEX   TO    CORPORATION   TAXES  379 

PAGE 

Rate  of  tax  under  Art.  9-a  increased  to  4%% 79 

Rate  of  tax  under  9-a 141 

Realty  corporations  taxable  on  franchise  under  Sec.  182 23,     40 

whether  capital  be  productive  or  not 41 

without  the  state  taxable 43 

Real  property,  lien  of  tax  on,  under  Art.  9 71 

assessment  of  fixtures  modified  by  Art.  9-a 125 

Realty  corporations  exempt  under  Art.  9-a 82 

Reassessment  by  commission  if  same  be  deemed  erroneous  on  appeal 

in  certiorari 180 

Refund,  by  comptroller  under  1919  act " 79,  128 

for  payment'  of  excess  taxes 160 

Rehearing,  see  revision  and  resettlement  and  rules  applying  to 160 

Reports  of  corporations  under   §   182 65 

transportation   and  transmission   companies 65 

elevated  and  surface  companies 65 

water-work,  gas,  electric,   steam  heating,   lighting  and  power  cor- 
porations       66 

insurance  corporations 66 

foreign  bankers   66 

trust  companies    66 

savings  banks    67 

investment  companies    67 

verification  of  by  officer  of  company 68 

what  to  contain 68 

due  from  domestic  corporations  under  Art.  9-a 99 

Report  by  foreign  corporations  under  Art.  9-a 100 

form  of   102 

illustrated  segregating  assets 108 

Receivers,  assignees,  trustee  to  file  under  Art.  9-a Ill 

by  corporation  on  basis  of  fiscal  year 138 

accounts  receivable  and  bills  receivable  duplicated  in  1917  form...   102 

under  9-a,  contents   of 137 

Return  (See  Report) 

Revision   and  readjustment  under   9-a 142 

Review  of  tax  commission's  decision  by  certiorari    (9-a) 142 

Report  comptroller  not  bound  by  corporations 69 

failure  to,  subjects  corporation  to  penalty 165 

Revenue   deposited   under   9-a 146 

Revision  of  corporation  taxes,  similar  provision  under  Article  16 ....    155 

form  of  application  for 158 

and  resettlement  of  tax..  .   160 


380  INDEX  TO  CORPORATION  TAXES 

PAGE 

Savings  banks  taxable  under  §  189 62 

School  taxes,  corporations  taxed  under  9-a  not  relieved  from 130 

Secrecy  required  of  officials 148,  170 

Segregation  required  for  corporations  having  no  net  income 78 

of  assets  under  Art.  9-a 104 

Cotton  converting  company 104 

Cotton  converting  company  selling  in  N.  Y 104 

Coal  company 105 

Import  company    105 

Commission  merchant   106 

Contracting  corporation 106 

Selling  goods  through  a  commission  house  is  not  "doing  business" ....  92 

Settlement  of  tax  after  January  15th 71 

State  bonds,  credit  to  be  given  corporation  in  purchase  of 62 

Steam  heating  companies  taxable  under   §   186 53 

Steam-surface  railroad,  steamboat  and  ferry  companies  taxable  under 

§  182   23 

Stock  dividends,  when  to  be  considered  in  assessing  franchise  tax. ...  39 

Stock  in  other  corporations  to  be  allocated  or  segregated 78 

Stocks  in  other  corporations  allocated  under  report,  Art.  9-a 102 

Subjects  of  taxation  under  9-a  are  business  corporations 81 

Subway  railroad  not  taxable  under   §   185 53 

Surety  companies  exempt  from  §  182 24 

Surplus  and  undivided  earnings  of  savings  banks  taxable  under  §  189  62 

Tax  commission,  powers  and  duties  of 164 

can  administer  oaths  164 

can  compel  testimony    164 

cannot  punish  for   contempt 165 

provisions  for  furnishing  necessary  data  to 164 

Tax  under   9-a  to  be  apportioned  between  states,   cities,   towns   and 

villages    132 

"Tangible  personal  property"  denned 136 

Telephone,  telegraph,  transfer   and  baggage  companies  taxable  under 

Section   182    

Title  guaranty  companies  exempt  from  Section  182 24 

Trade  marks  to  be  considered  in  assessment  under  §   182 40 

Transportation,  transmission  companies  taxable  on  gross  earnings ...  50 

Trust  companies  exempt  from   §   182 24 

Trust   companies,   savings   banks   and    investment   companies    taxable 

under    §    188 61 

Trustees  to  file  report  under  Art.  9-a Ill 

United  States  securities  considered  for  franchise  tax  purposes 40 


INDEX  TO  CORPORATION  TAXES  381 

PAGE 

Verification  reports 139 

Verification    of    petition 159 

Warrant  for  the  collection  of  taxes  (9-a) 145 

Warrant  for  collection    of    taxes 167 

Warrant  for  unpaid  personal  income  tax 168 

Water  works,  gas,  electric,  steam  heating,  lighting  and  power   com- 
panies exempt  under  §   182 24 

taxable   under    §   186     53 

Wisconsin  Income  Tax 94,     95 


INDEX  TO  INCOME  TAX  (PAET  IV) 

(Index  to  Corporation  Taxes  supra) 

PAGE 

Accounting  method  of,  what,  §  358,  subd.  1 246 

period,  separate,  return  when  changed,   §  370 326 

Accounts,  revision  and  readjustment  of,  by  comptroller,  §  374 329 

Action  for  recovery  of,  may  be  brought  by  attorney  general,  §  381 ....    335 
Act  not  invalidated   if   part   thereof   adjudged   to   be   invalid,    §  385, 

subd.   2    335 

Administration  of  Income  Tax  appropriation  of  $300,000,  §  385,  subd. 

5    338 

Affidavit,  return,  to  be  annexed  to,   §  371 327 

Agent,  fiduciary  distinct  from  return,  when  to  make,  §  367 322 

warrant  to,  for  collection  of  unpaid  tax,   §  380 334 

Agents,  withholding    (see  withholding  agent) 

Amounts  received  through  accident  or  health  insurance,   §  359,  subd. 

2-e    265 

soldiers  or  sailors  benefit  law,  §  359,  subd.  2-e 265 

war  risk  insurance  act,  through,  §  359,  subd.  2-e 265 

under  workmen's   compensation   acts   as  compensation   or   damages, 

§  359,  subd.  2-e 265 

Amount  withheld  to  be  credited  against  income  tax  as  computed  in 

return,  §  366,  subd.  4 321 

Analysis  of  Personal  Income  Tax 185 

Annuities,  to  non-residents,  gross  income  from,  when  included  in,  §  359, 

subd.  3    267 

Appropriation  of  $300,000  for  administration  of  act,  §  385,  subd.  5 . . 
Assembly  ways  and  means  committee  chairman  to  approve  new  posi- 
tions and  fixed  salaries,  §  385,  subd.  5 

Assessment,  notice  of,   §  378 334 

record  to  be  preserved  by  comptroller,   §  378 334 

Assessment  of  personal  property  made  prior  to  Aug.  1,  1919 

taxes  thereon,  obligation  to  pay,   §  385,  subd.  5 338 

validity  of,  §  385,  subd.  5 338 

Attorney-general,  action  by,  for  recovery  of  unpaid  taxes,  §  381 335 

opinions  of,  construing  JST.  Y.  law 213 

taxes,  unpaid,  action  by  for  recovery,   §  381 335 

382 


INDEX  TO   INCOME  TAX  383 

PAGE 
Beneficiaries  of  estate  or  trust 

distributive  share  of  estate  or  trust  to  be  included  in  return  by  fidu- 
ciary,  §  365,  subd.  2 315 

fiduciary  to  include  in  return  distributive  share  of,  §  365,  subd.  2. .  315 

income   distributed  to  periodically,   §365,   subd.    1-d 314 

when  tax  paid  by  fiduciary,  §  365,  subd.  3 316 

net  income  to  include  distributive  share,  §  365,  subd.  4 318 

Betterments,  not  deductible  from  net  income,  §  361,  subd.  2 308 

Bonds,  exempt  locally,  §  352 337 

Books  and  records,  when  comptroller  to  examine,   §  373 329 

Branch  offices  to  be  established  for  administration  of,   §  372 329 

Budget,  cities,  inclusion  of  tax  therein ;  when,  §  385,  subd.  4 

revenue  from  Act  to  be  included  in ;  when,  §  385,  subd.  4 

Business  of  non-resident  individuals  in  state  subject  to,  §  351 236 

Capital   expenditures,  not  deductible    308 

Certiorari    (See  Chapters  XX  to  XXII,  Part  III) 

eight  days'  notice  to  be  given  comptroller  of  application  for  writ, 

§  375 330 

notice  of  application  therefor  must  be  made  within  thirty  days  after 

notice  of  determination,    §  375 330 

review  of  determination  of  comptroller,   §  375 330 

undertaking  to  be  filed,   §  375 330 

writ;    regulations  as  to  comptroller;    determination  of,   reviewable 

by,  §  375   330 

Charitable  contributions  or  gifts  deductible  from  net   income,    §  360, 

subd.    10    303 

Choses  in  action,  exempt  locally  (See  Chapter  XXVII,  Part  IV),  §  352  237 
Cities,  budget,  when,  to  include  revenue  from  act;  when  Ch.  627,  L. 

1919,  §  385,  subd.  4 338 

revenue  collected,  apportioned  among,  §  382 336 

revenue  to;  when  to  be  included  in  budget,  Ch.  627,  L.  1919,  §385, 

subd.   4    338 

Collection  of  warrant  for  (See  Chapter  XXI,  Part  III),  §  380,  subd.  1  334 
Comptroller,  account  for  taxes,  penalties,  etc.,  to  audit  and  state,  §  373  329 
accounting  period,  new,  basis  of  computing  net  income,  when,  §  358, 

subd.   2    246 

agent;  issued  to,  §  380 334 

assessment;  notice  of,  to  be  preserved  by,  §  378 334 

blank  forms  to  be  furnished  by,  §  371 327 

books  and  records,  to  examine,    §  373 329 

branch  offices  of  for  administration  to  be  maintained,  §  372 329 


384  INDEX   TO   INCOME   TAX 

PAGE 
certiorari    (See  Chapters  XX  to  XXII,  Part  III) 

eight  days'  notice  to,  §  375 330 

notice  of  application  for,   §  375 330 

undertaking  to  be  filed  with,    §  375 330 

collection  of,  by  (See  Chapter  XXI,  Part  III),  §  379,  subd.  1 334 

computation  of,  by,   §  377,  subd.   2 333 

credit  allowed  by,  to  non-residents,  when,  §  363 311 

definition  of,  §  350,  subd.  1 226 

depletion  allowance,  to  be  determined  by,  §  360,  subd.  9 266 

determination  of,  reviewable  by  certiorari,  §  375 330 

hearing   by,    §  374 329 

incorrect,  when,  may  revise,   §  373 329 

inventories,  may  require,  when,   §  356 242 

may  estimate  taxable  income  when  no  return  made,  §  373 329 

net  income,  manner  of  computing,  to  be  determined  by,  when,  §  358, 

subd.    1    246 

notice  of  assessment;  record  of  to  be  preserved  by,  §  378 334 

partnership,  may  require  return  for,  when,   §  364 312 

payment  of  tax  to,  by  withholding  agent,  §  366,  subd.  3 321 

penalty  for  violation  of,  §  384,  subd.  2 337 

powers    of,    §  373 329 

resettlement  and  readjustment  of,  by,  §  374 329 

return  and  payment  of  tax  to,  by  withholding  agents,  §  366,  subd.  3  321 

may  estimate  taxable  income  when  no  return  made,   §  373 329 

may  revise  when  incorrect,  §  373 329 

return  to,  by  March   15,   §  371 327 

return  to,  by  withholding  agents,   §  366,  subd.  2 320 

revision  and  readjustment  of  accounts  by,   §  374 329 

rules  and  regulations  for  deduction  and  withholding  at  source 208 

re  depletion  allowance,  to  be  prescribed  by,  §  360,  subd.  9 289 

to   make,   §  383 336 

gecrecy  required  of,  re  income  returns,  §  384,  subd.  1 337 

sheriff,   issued  to,    §  380 334 

taxable  income,  to  estimate,  when  no  return  made,  §373 329 

testimony,  may  take,  when,  §  373 329 

time  of  filing  may  be  extended  by,  §  371 327 

to   administer,    §  372 329 

to  audit  and  state  account  for  taxes,  penalties,  etc.,  §  373 329 

to  be  given  eight  days'  notice  of  application  for  writ  of  certiorari, 

§  375   330 

to  estimate  taxable  income  when  no  return  made,  §  373 329 

to  examine  books  and   records,   when,    §  373 329 

to  provide  a  fund  for  payment  of  refunds,  §  382 336 


INDEX  TO   INCOME  TAX  385 

PAGE 
to  receive   excess   when   computation   of   tax   greater   than    amount 

theretofore  paid,   §  377,  subd.  3 333 

to  refund  excess  when  computation  of  tax  less  than  amount  there- 
tofore paid,  §  377,  subd.  4 334 

to  retain  amount  of  tax  to  provide  a  fund  of  $250,000  for  payment 

of  refunds,    §  382 336 

undertaking  re  certiorari  to  be  filed  with,  §  375 330 

warrant  for   collection  of,    §  380 334 

agent,    issued    to,    §  380 334 

return  unsatisfied,  when,    §  380 334 

sheriff,   issued  to,    §  380 334 

when  greater  than  amount  theretofore  paid,  §  377,  subd.  3 333 

when  less  than  amount  theretofore  paid,   §  377,  subd.  4 334 

Computation  of  tax,  §  377,  subd.  2 333 

adjustment  by  comptroller,  §  374 329 

estates  and  trusts,  net  income  of,   §  365,  subd.  2 315 

net    income,    §  358 246 

when  greater  than  amount  theretofore  paid,   §  377,  subd.  3 333 

Constitutionality  of  tax  on  Personal  Incomes 190 

Contract  to  assume  tax  illegal,  §  385 337 

Home  Rule  Principle  involved   in 191 

Contributions,  gifts  deductible  from  net  income,  §  360,  subd.  9 289 

Corporation,  gain  through  issuance  or  exchange  of  stock,  §  355 241 

gifts  or  contributions  to  certain  deductible  from  net  income,  §  360, 

subd.  »10    303 

Corporations,individuals,  partnerships,  claims  and  demands,  indemni- 
fied against,   §  366,  subd.  3 321 

tax,  liability  for,  §  366,  subd.  3 321 

County  not  to  be  divided  in  forming  district,  §  372 329 

County  treasurer,  revenue  collected,  portion  of,  to,   §  382 336 

Credit  to  non-residents,    §  363 311 

Debts,  worthless,  when  deducted  from  net  income,  §  360,  subd.  7 ....   281 
Deceased  persons,  taxed  on  estates  of,  imposed  upon  net  income  of, 

§  365,   subd.   3 316 

payable  by  fiduciary,  §  365,  subd.  3 316 

income  received  by  esta'tes,  §  365,  subd.  1-a 314 

income  to  legatee,  heir,  etc.,  deductible,  §  365,  subd.  3 316 

Decisions  under  the  Corporation  Income  Tax 339 

Deduction  at  source,  no  penalty  for  failure  to  return  or  pay  same, 

except  for  fraud,   §  366,   subd.  5 321 

not  re-collectible  from  withholding  agent,   §  366,  subd.  5 321 

Deductions,  apportionment  and  allocation  of,   §360,  subd.   11 306 


386  INDEX   TO   INCOME   TAX 

PAGE 

at  source,  from  income,    §  366,  subd.   1 319 

comptroller's  rules  and  regulations  for,  §  549 208 

deceased  person,  estate  of,  when  income  paid  to  legatee,  heir,  etc., 

§  365,  subd.   3 316 

gross  income,  when  part  of,  payable  to  U.  S.,  state,  etc.,  or  to  char- 
itable corporation,   §  365,  subd.  2 315 

net  income,  allowed ;  business,  necessary  expenses  of,  §  360,  subd.  1  268 

contributions  or  gifts,    §  360,   subd.    10 306 

debts,  worthless,  charged  off,  §  360,  subd.  7 281 

exhaustion,  wear  and  tear,  depreciation,  obsolescence,  §  360,  subd. 

8 283 

interest  on  indebtedness,  proportion  of,  §  360,  subd.  2 274 

losses  in  business,  not  compensated  for,  §  360,  subd.  4 277 

fires,    storms,   shipwrecks,   theft,    §  360,    subd.    6 279 

transactions  for  profit,  when,   §  360,  subd.  5 278 

mines,  oil,  gas  wells,  timber,  natural  deposits,  §  360,  subd.  9 ....  289 

non-resident,  apportionment  and  allocation  of,  §360,  subd.  11...  306 

arising   within    state,    §  360,   subd.    11 306 

contributions  or  gifts,    §  360,   subd.    10 306 

obsolescence,    §  360,    subd.    8 283 

taxes  paid  or  accrued,  what,  §  360,  subd.  3 275 

net  income,  not  allowed 

non-resident,  when,  §  367 322 

permanent  improvements,  betterments,  new  buildings,  §  361,  subd. 

2    308 

personal  expenses,  living  or  family,  §  361,  subd.  1 307 

premiums  on  life  insurance  policies,  what,  §361,  subd.  4 308 

restoring  property,   when,    §  361,   subd.    3 308 

non-resident,  when  not  entitled  to,   §  367 322 

partnerships,  what  allowed  in  computing  net  income  of,   §364....  312 
Definitions  of 

comptroller,   §  350,   subd.    1 226 

dividend,   §   350,  subd.   8 230 

fiduciary,  §  350,  subd.  5 227 

foreign  country  or  foreign  government,   §  350,  subd.   9 235 

gross  income,  §  359,  subd.   1 249 

military  or  naval  forces  of  the  United  States,  §  350,  subd.  3 227 

net  income,  §  357 245 

paid,  §  350,  subd.  6 228 

received,  §  350,  subd.  6 229 

resident,  §  350,  subd.  7 229 

taxable  year,  §  350,  subd.  4 227 

taxpayer,  §  350,  eubd.  2 226 


INDEX  TO  INCOME  TAX 


38? 


PAGE 

United  States,   §  350,  subd.  9 235 

withholding  agent,   §  350,  subd.   10 235 

Dependents,  exemptions  allowed,   §  362,  subd.  2 310 

Depreciation  of  improvements  deductible  from  net  income,  when,  §  360, 

subd.  9    289 

Distribution  of,   §  382 336 

Districts,   county  not  to  be  divided  in  forming,   §  372 329 

state  to  be  divided  into,  for  administration  purposes,   §  372 329 

Dividend,   definition   of,    §  350,   subd.    8 230 

paid  in  Liberty  Bonds,  property,  etc.,  §  350,  subd.  8 230 

Domicile  defined  and  distinguished  from  residence 199 

Educational  corporations,  gifts  or   contributions  to,   deductible  from 

net  income,  §  360,  subd.   10 303 

Employees  and  officers,  penalty  for  violation  of,  §  384,  subd.  2 337 

secrecy  required  of,  re  income  returns,   §  384,  subd.   1 337 

Estate,  certain  personal  property  belonging  to,  exempt  locally,  §  352 . .   237 
Estates  and  trusts   (see  Chapter  XXVIII  on  Estates  and  Trusts) 

beneficiary's  net  income  to  include  distributive  share,  §  365,  subd.  4  318 

exemptions,  §  365,  subd.  3 316 

fiduciary,  not  to  pay  tax;   when,   §  365,  subd.  4 318 

to  pay  tax ;  when,  §  365,  subd.  3 316 

imposed  upon  net  income  of,   §  365,  subd.  3 316 

income  of,  §  365,  subd.  1 314 

net  income,  computation  of,  §  365,  subd.  2 315 

non-resident,  created  by,  taxation  of,  §  365,  subd.  3 316 

return,  fiduciary  responsible  for  making,   §365,  subd.  2 315 

Excess  to  be  refunded  when  tax  less  than  amount  theretofore  paid, 

§  377,  subd.   4 334 

to  be  paid  comptroller  when  greater  amount  theretofore  paid,  §  377, 

subd.   3    333 

Exchange  of  property,  gain  or  loss  with  respect  to,  §  354 238 

stock,  new,  issued  in  place  of  old,  upon  reorganization  of  corpora- 
tion,   §  354    238 

Exemptions,  amounts  received  through  accident  or  health  insurance, 

§  359,  subd.  2-e 265 

for  benefit  of  disabled  soldiers  or  sailors,  §  359,  subd.  2-e 265 

war  risk  insurance  act,  §  359,  subd.  2-e 265 

workmen's   compensation    acts,    §359,   subd.    2-e 265 

of  certain   personal   property,    §  352 237 

estates  and  trusts,  income  of,   §  365,   subd.  3 316 

gross  income,  from  premiums  returned  to  insured  upon  life  insur- 
ance policies,    §  359,   subd.   2-b 261 


388  INDEX  TO   INCOME   TAX 

PAGE 
proceeds  from  life  insurance  policies  paid  upon  death  of  insured, 

§  359,    subd.    2-a 261 

value   of   property   acquired  by   gift,  bequest,   devise  or    descent, 

§  359,  subd.  2-c 262 

interest  upon  bonds  issued  by  war  finance  corporation,  §  359,  subd. 

2-d    263 

obligations  of  the  U.  S.  or  its  possessions,  §  359,  subd.  2-d 263 

securities  under  federal  farm  loan  act  of  July   17,   1916,    §  359, 

subd.  2-d 263 

partnerships,  net  income  of,  what   allowed,   §364 312 

reduction  of,  when  accounting  period  changed,    §  370 326 

resident  taxpayer 

dependents,   amount   of,    §  362,   subd.   2 310 

head  of  family,  amount  of,   §  362,  subd.   1 309 

husband  and  wife,  amount  of,   §  362,  subd.   1    309 

single  person,  amount  of,  §  362,  subd.  1 309 

taxpayer,  receiving  compensation  from  United  States,  amount  of, 

§  362,  subd.  3 311 

United  States  official,  to,  §  362,  subd.  3 311 

Exhaustion,  wear  and  tear,  deduction  allowance  from  net  income,  §  360, 

subd.  8    283 

Expenses,  ordinary  and  necessary,  of  business,  deducted  from  net  in- 
come,   §  360,   subd.    1 268 

personal,  living,  family,  not  deductible  from  net  income,  §  361,  subd. 

1    306 

Failure  to  return  or  pay  same,  when  penalty  does  not  attach,  §  366, 

subd.   5    321 

Fiduciary,  beneficiary's  distributive  share  to  be  included  in  return  by, 

§  365,   subd.  2 315 

definition  of,  §  350,  subd.  5 227 

distinct  from  agent,  §  350,  subd.  5 228 

paid  by,  when,  §  365,  subd.  3 316 

return,   §  369    324 

responsible  for  making  re  income  for  estate  or  trust,  §  365,  subd.  2  315 
subject  to  provisions  of  this  article  which  apply  to  taxpayers,  §  369  324 

when  not  paid  by,  §  365,  subd.  4 318 

Fixed  or  determinable  income  to  be  deducted  and  withheld,  §  365,  subd. 

4    318 

First  levied,  collected  and  paid,  when,  §  351 236 

Foreign  country  or  foreign  government,  definition  of,  §  350,  subd.  9 . .   235 


INDEX  TO   INCOME  TAX  389 

PAGE 
Forms  for  return 

failure   to   secure  does  not   relieve   taxpayer   from   making  return, 

§  371    327 

to  be  furnished  by  comptroller,  §  371 327 

Forms   in    Certiorari 346 

of  Reports  or  Returns  under  Arts.  9  and  9-a 353 

From  fires,  storms,  shipwrecks,  theft,  when  deductible  from  net  in- 
come,  §  360,   subd.   6 279 

Gain  and  loss 

ascertainment    of,    §  353 237 

ascertainment,  in  case  of  stocks  of  "fair  market  value". 237 

basis  of,  on 

inventoried  property,   §  353 237 

property  acquired  before,  on  or  after  Jan.  1,  1919,  §353 237 

sale     

exchange  of  property  in  determining,    §  354 238 

none  deemed  to  occur  re-exchange  of  stock  or  securities;  when,  §  354  238 
Gain  through  exchange 

stock  or  securities,  §  355 241 

amount  in  excess  of  par  treated  as  gain,  §  355 

when  treated  as  taking  place  of  those  exchanged,  §  355 

Gifts,  contributions 

deductible  from  net  income,  §  360,  subd.  10 303 

Governor  to  approve  new  positions  and  fixed  salaries,  §  5 338 

Gross  income 

amount  of,  includes  what,  §  359,  subd.  1 249 

compensation  for  personal  services,   §  359,  subd.  1 249 

deduction  contracts,  from,   §  359,  subd.   1 249 

when  part  payable  to  U.  S.,  state,  etc.,  or  to  charitable  corpora- 
tion,  §  365,  subd.  2 315 

defined,  §  359,  subd.  1 249 

derived  from  what,  §  359,  subd.  1 249 

does  not  include,   §  359,  subd.   2 261 

farmers,  includes  what 251 

good-will,  sale  of 253 

non-residents,  includes  what,  §  359,  subd.  3 267 

patents,    sale    of 253 

sale  on  instalment  plan 253 

stocks,  sale  of 252 

Gross  receipts 

partnerships,  returns  showing,  may  be  required,  §364 312 


390  INDEX  TO   INCOME  TAX 

PAGE 

Guardian 

income  collected  by,  §  365,  subd.  1-d 314 

return,  when  to  make,  §  367 322 

Head  of  family,  exemption  allowed,  §  362,  subd.  1 309 

Hearing  by  comptroller 

revision  and  readjustment  of  accounts;  re,  §  374 329 

"Home  rule"  principle  of  state  constitution 192 

Husband  and  wife,  exemptions  to,  §  362 309 

return  when  net  income  $2,000  or  more,   §  367 322 

Income  accounting  period;   change  in;   computation  of,  §370 326 

accumulated  in  trust  for  benefit  of  unborn  or  unascertained  persons 

with  contingent  interests,  §  365,  subd.  1-b 314 

amount  of  not  to  be  divulged,  §  384,  subd.  1 337 

penalty  for  violation  of,   §  384,  subd.  2 337 

beneficiaries  of  estate  or  trust 

distributed  to,  §  365,  subd.  1-d 314 

fiduciary  to  include  in  return  statement  of,  §365,  subd.  2 315 

non-resident,  extent  of  tax,  §  365,  subd.  4 318 

when  tax  not  paid  by  fiduciary,  §  365,  subd.  4 318 

business,  trade,  profession,  etc.,  from,    §  351 236 

comptroller,,  return  to,  by  March  15,   §  371 327 

to  estimate,  when,   §  373 329 

computation  of  when  accounting  period  changed,  §  370 326 

deceased  persons,  estates  of,   §  365,  subd.  1-a 314 

imposed  upon  net  income  of  and  payable  by  fiduciary,  §  365,  subd. 

3    316 

deductions,    §  360 268 

at  source,  §  366,  subd.  1 319 

what  not  allowed,   §  361 306 

dependents,  exemptions  allowed,  §  362,  subd.  2 310 

distributed  to  beneficiaries,  §  365,  subd.  1-d 314 

distributive  share  from  partnership,  §  364 312 

estates  and  trusts,  §  365,  subd.  1 314 

estimate  of,  by  comptroller,  when,  §  373 329 

exemptions  from,  gross,  §  359,  subd.  2 261 

failure  to  report 

comptroller   to  examine  books   and  records   and   take   testimony, 

§  373 329 

fiduciary,  when  tax  not  paid  by,   §  365,  subd.  4 318 

gain  and  loss,  ascertainment  of,  in  determining,  §  353 237 

guardian  of  infant,  collected  by,  §  365,  subd.  1-d 314 


INDEX  TO   INCOME   TAX  391 

PAGE 

imposed  upon  net  income  of,   §  365,  subd.  3 316 

payable  by  fiduciary,  §  365,  subd.  3 316 

information  concerning  non-residents  given  to  comptroller  by  with- 
holding agent,  §  366,  subd.  2 320 

in  addition  to  all  other  taxes  with  certain  exceptions,  §  352 237 

inventories  may  be  required  to  show,  when,   §  356 242 

legatee,  heir,  etc.,  deductible  when  paid  to,  §  365,  subd.  3 316 

net  income,   computation   of,    §  358 245 

defined,    §  357    245 

non-residents,  gross,  includes  what,  §  359,  subd.  3 267 

two  per  cent,  deductible  therefrom  at  source,  §  366,  subd.  1 319 

officer   religious   denomination,   institution   or   trust,   what   exempt, 

§  359,   subd.    2-g 266 

partnership,    §  368 324 

computation  of,   §  364 312 

partners,   taxable  individually,    §  364 309 

personal    exemptions,    §  362 309 

property   owned,    §  351 236 

property,  sale  of,  gain  or  loss,  in  determining,   §  353 237 

recipient,  to  be  included  in  return  of,  §  366,  subd.  4 321 

return  to  comptroller  by  March  15,  §  371 327 

taxpayer  to  make  return,  §  367 322 

to  be  computed  on  basis  of  period  for  which  separate  return  made 

when  accounting  period  changed,   §  370 326 

to  be  included  in  return  of  recipient,  §  366,  subd.  4 327 

two  per  cent  thereof  withheld  by  withholding  agent,  when  $1,000  or 

more,  when,  §  366,  subd.  1 319 

will  or  trust,  §  365,  subd.  1-c 314 

imposed  upon  net  income  of  and  payable  by  fiduciary,  §  356,  subd. 

3    242 

withholding  agent,  two  per  cent  withheld  by,  when  $1,000  or  more, 

§  366,  subd.    1 319 

Individual  partners  liable  for,    §  364 312 

Individuals,  corporations,  partnerships,  claims  and  demands;  indemni- 
fied against,   §  366,  subd.  3 321 

tax,  liability  for,   §  366,  subd.   3 321 

Information  and  payment  at  source,  §  366 319 

Improvements,  permanent 

not  deductible  from  net  income,  §  361,  subd.  2 308 

Interstate  commerce  clause  of  Federal  constitution 196 

Interest 

on  indebtedness,  when  deductible  from  net  income,  §  360,  subd.  2 . .   274 
payable  thereon  when  time  for  filing  return  extended,  §  377,  subd.  1 .   333 


392  INDEX   TO   INCOME  TAX 

PAGE 

when  exempt  from,  §  359,  subd.  2-d 263 

Interest,  penalties,  taxes 

comptroller  to  audit  and  state  account  for,  §  373 329 

Invalid,   when   parts  of  act  adjudged  to  be,  remainder   not  affected, 

§  385,   subd.   2 337 

Inventory 

by  dealers  in  securities,   §  356 244 

comptroller  may  require  and  prescribe  basis  of,  when,   §  356 242 

to  conform  to  accounting  methods  and  forms  of  internal  revenue 

commissioner,    §  356    . , 242 

valuation  at  cost,   §  356 243 

valuation  at  market,  §  356 243 

Law,  valid,  except  as  to  illegal  parts,  §  385,  subd.  2 337 

Leases,  net  income,  depletion  allowance,  apportionment  of,  §  360,  subd. 

9    290 

Legatee,  heir,  etc. 

income  to,  when  deductible,   §  365,  subd.  3 316 

Levied,  collected  and  paid  in  1920  and  annually  thereafter,  §  351 236 

Levy  and  sale  of  property  for  non-payment  of,   §  380 334 

Liability   for,   of    individuals,    corporations   and   partnerships,    §  366, 

subd.  3    321 

Lien  on  property 

warrant  for  collection  of,  §  380 334 

Local  assessments 

not  deductible  from  net  income,  §  360,  subd.  3 276 

Loss  and  gain 

ascertainment  of,  §  353 237 

basis  of,  on 

inventoried  property,  §  353 237 

property  acquired  before,  on  or  after  Jan.  1,  1919,  §  353 237 

Losses 

trade  or  business,  deductible  from  net  income,  §  360,  subd.  4 277 

Market  value 

depletion  allowance,  when  based  on,  §  360,  subd.  9 290 

meaning  of 243 

stock,  upon  exchange,  in  determining  gain,  §  355 241 

Married   persons,   exemptions   to,    §  362 309 

Method  of  accounting,  in  determining,   §  358 245 

Military  or  naval  forces  of  the  United  States 

definition  of,  §  350,  subd.  3 227 

Mines,  depletion  allowance 

deductible  from  net  income,  §  360,  siibd.  9 290 


INDEX   TO    INCOME   TAX  393 

PAGE 

Missouri  income  tax  law 197 

Money  on  hand,  on  deposit  or  at  interest,  exempt  locally,  §  352 237 

Net  income 

computation  of,  basis  of,  §  358,  subd.  1 245 

when  accounting  period  changed,   §  358,  subd.  2 246 

deceased  person,  estate  of 

when  payable  to  legatee,  heir,  etc.,  deductible,  §365,  subd.  3 316 

deductions 

what  allowed,  §  360 290 

what  not  allowed,   §  361 307 

denned,    §  357    245 

dependents,  exemptions  allowed,  §  362,  subd.  2 ,. .  310 

distributive  share  of  partner,  what  included,   §  364 312 

estate  or  trust 

beneficiary's  distributive  share  included  in,  §365,  subd.  4 318 

fiduciary  to  include  in  return,   §  365,  subd.  2 315 

computation  of,  §  365,  subd.  2 315 

partnership,   computation   of,   §  364 312 

personal  exemption  from,   §  362 309 

tax,  credit  to  non-residents,  when,  §  363 311 

New  York  City 

revenue  collected,  portion  of,  to  receiver  of  taxes,   §  382 336 

Non-payment,  penalty  for,  §  379,  subd.  2 334 

Non-resident 

non-resident  alien  under  Fed.  L 230 

credit  on  income  tax  payable  in  this  state,  when,  §  363 311 

deductions  under  Sec.  360,  when  not  entitled  to,  §  367 322 

estates  and  trusts 

income  from,  extent  of  tax,  §  365,  subd.  4 318 

taxation  of,  when  created  by,  §  365,  subd.  3 316 

gifts  or  contributions  deductible  from  net  income,  §  360,  subd.  10 . .  303 

gross  income,  includes  what,   §  359,  subd.  3 267 

income  of,  within  state: 

two  per  cent  deductible  therefrom  at  source,  §  366,  subd.  1 319 

individuals,   property  in  state,    §  351 236 

information  of,  to  comptroller  by  withholding  agent,  §  366,  subd.  2  320 
interest  on  indebtedness 

what  deducted  from  net  income,   §  360,  subd.  2 274 

return  of  withholding  agent,  concerning,   §  366,  subd.  2 320 

to  be  included  in  return  of  recipient  of  income,  §366,  subd.  4 321 

when  not  entitled  to  deductions  authorized  by  Sec.  360,  §  367 322 

withholding  agent,  return  concerning,  §  366,  subd.  2 320 


394  INDEX   TO   INCOME   TAX 

PAGE 

Notes,  exempt  locally,  §  352 237 

Notice  of  assessment,  §  378 334 

record  of  to  be  preserved  by  comptroller,  §  378 334 

Obsolescence 

deductible  from  net  income,  §  360,  subd.  8 283 

Occupations  of  non-resident  individuals  in  state 

subject  to,  §  351 236 

Officers  and  employees 

secrecy  required  of,  re  income  returns,  §  384,  subd.  1 337 

penalty  for  violation  of,  §  384,  subd.  2 337 

Oil  and  gas  wells 

depletion  allowance,  deductible  from  net  income,  §  360,  subd.  9 290 

Oklahoma  income  tax  law 197 

Opinions  of  Attorney-General  construing  N.  Y.  Law 213 

Paid,  definition  of,  §  350,  subd.  6 228 

what  may  be  deducted  as,   §  350,  subd.  6 228 

Partners 

comptroller  may  require  return  for  partnership,   §  364 312 

net  income,  distributive  share  of  partnership  income,  §  364 

Partnership 

indemnified  against  claims  and  demands,  §  366,  subd.  3 321 

liability  for,   §  366,  subd.  3 321 

members  of,  liable  individually  for  income  tax,  §  364 312 

net  income,  computation  of,  §  364 312 

return,   §  368    324 

members   of,    §  364 312 

Payable,  when,   §  377,  subd.   1 333 

Payment  of,  at  source 208 

Rules  and  regulations  by  comptroller  as  to,  §  366 319 

by  withholding  agent  to  comptroller  by  March  15,  §  366,  subd.  3 . .   321 
in  cases  where  accounting  period  changed  by  taxpayer,  §  370 326 

Penalties,  taxes,  interest 

comptroller  to  audit  and  state  account  for,  §  373 329 

Penalty 

for  failure  to  return  or  pay  tax  required  to  be  withheld  when  paid 

by  recipient  of  income,  when,  §  366,  subd.  5 321 

for  non-payment,  at  proper  time,  §  379,  subd.  2 334 

for  violating  secrecy  of  returns,  §  384,  subd.   1 337 

return,  §  376    330 

after  specified  time,  §  376,  subd.  2 331 

failure  to  make,  §  376,  subd.   1-3 331 

false  or  fraudulent,  §  376,  subd.  1-3 331 


INDEX  TO   INCOME  TAX  395 

PAGE 

tax,  non-payment  of,  §  379,  subd.  2 334 

violation  re  divulging  income  returns,  §  384,  subd.  2 337 

Personal  property 

assessment  of,  prior  to  Aug.    1,   1919,   deemed  to  be  valid,   §  385, 

subd.  3    338 

certain,  after  July  31,  1919,  exempt  locally,  §  352 237 

intangible,  exempt  from  local  taxation,   §  352 237 

Positions 

deemed  temporary,   §  385,  subd.  3 338 

no  new,  except  on  unanimous  approval  of  governor  and  chairmen 
senate  finance  and  assembly  ways  and  means  committees,  §  385, 

subd.  5    338 

Premiums 

what  not  deductible  from  net  income,  §  361,  subd.  4 308 

Professions  of  non-resident  individuals  in  state  subject  to,  §  351 236 

Property 

sale  of,  in  re  gain  or  loss,  §  353 237 

Property  exchanged 

gain  or  loss 

equivalent  of  cash  for  purposes  of  determining,  when,  §  354 238 

market  value  of,  re-determining  gain  or  loss,  §  354 238 

taxpayer,  stock  exchanged,  gain  or  loss,  when,   §354 238 

Property,  restored,  certain 

expense  of,  not  deductible  from  net  income,  §  361,  subd.  3 308 

Eates  of,  §  351 236 

Received 

definition  of,    §  350,   subd.  6 ... 228 

Receiver  of  taxes  (N.  Y.  City) 

revenue  collected,  portion  of,  to,  §  382 336 

Reciprocal  laws 

credit  to  non-residents  dependent  upon,  §  363 311 

Records  and  books 

comptroller  to  examine,  when,  §  373 ". 329 

Refunds 

fund  for,  comptroller  to  retain  $250,000  of  revenue  collected,  §  382 .   336 

taxpayer,  to,  when,   §  377,  subd.  4 333 

Regulations  and  rules,  comptroller  to  make,   §  383 336 

for  deduction  and  withholding  at  source 208 

Religious   contributions    or   gifts   deductible   from   net   income,    §  360, 

subd.    10    303 

Rentals 

proper  deduction  from  net  income,  when,  §  360,  subd.  1 268 


396  INDEX  TO   INCOME  TAX 

PAGE 

Kesidence  under  N.  Y.  Transfer  Tax  Act 200 

Ohio  Personal  Tax  Law 201 

N.  Y.  Personal  Tax  Law 202 

Resident,  definition  of,   §  350,  subd.  7 229 

resident  alien,  §57 

Residents  and  non-residents 

imposition    of,    §  351 236 

Return 

accounting  period,  change  in,   §  370 326 

affidavit  to  be  annexed  thereto,  §  371 327 

agent  or  guardian,   §  367 322 

attorney-general,   inspection  by,  of,   §  384,   subd.   1 337 

beneficiary's    distributive    share,   to   be   included   in,    by   fiduciary, 

§  365,  subd.  2  315 

blank  forms 

failure  to  secure,  taxpayer  not  relieved  from  making,   §  371....  327 

to  be  furnished  by  comptroller,    §  371 327 

comptroller 

blank  forms  to  be  furnished  by,  §  371 327 

may  extend  time  of  filing,  §  371 327 

to,  by  March   15,   §  371    327 

to,  by  withholding  agent,   §  366,  subd.  2,  3 320 

to   revise,   when,    §  373    329 

estate  or  trust 

fiduciary  responsible  for  making,   §  365,  subd.   2 315 

estimate  of  income  by  comptroller,  when  none,  §  373 329 

failure  to   make,   comptroller   to   examine  books   and   records   and 

take    testimony,    §  373    329 

fiduciary,    §  369     325 

to  include  beneficiary's  distributive  share,   §  365,  subd.  2 315 

filing 

extension  of,  none  for  more  than  six  months,  when,  §  371 327 

time  of  may  be  extended  by  comptroller,   §  371 327 

husband  and  wife,  when  net  income  $2,000  or  more,  §  367 322 

income  upon  which  tax  withheld  at  source,  to  be  included  in,  §  366, 

subd.  4 321 

incorrect,  comptroller  may  revise,  §  373  329 

individual,    §  367     322 

net  income,  re,  to  comptroller  by  March  15,  §  371 327 

none,  comptroller  to  estimate  income,  when,  §  373 329 

particulars  as  to,  not  to  be  divulged,  §  384,  subd.  1 337 

penalty  for  violation  of,  §  384,  subd.  2 337 

partnership,  §  368   324 


INDEX  TO   INCOME  TAX  397 

PAGE 

members  of,  §  364 312 

penalty  after  specified  time,  §  376,  subd.  2 331 

failure  to  make,  §  376,  subd.   1-3    331 

false  or  fraudulent,  §  376,  subd.  1-3 331 

revision  of  by  comptroller,  when,   §  373    329 

separate 

exemptions  to  husband  and  wife,  §  362,  subd.  1 309 

when  accounting  period  changed,    §  370 326 

statistics  re,  publication  of,  §  384,  subd.  1 337 

taxpayer,    §  367     372 

not   relieved   from   making,   because  of  failure   to   secure   blank 

forms,    §  371    327 

time  and  place  of  filing,  §  371 327 

to  be  preserved  for  at  least  three  years,  §  384,  subd.  1 337 

to  set  forth  same  items  in  forms  prescribed  by  U.  S.  revenue  act, 

§  371 327 

to  set  forth  such  facts  as  comptroller  deems  necessary,  §  371 327 

withholding  agent,  by,  §  366,  subd.  2,  3 320 

Eeview  of  determination  of  comptroller  by  certiorari,  §  375 330 

Revision  and  readjustment  of  accounts  by  comptroller,  §  374 329 

Revision  and  resettlement  of  tax 

Rules    (see  regulations),   certiorari,   reviewable  by,    §  375 330 

Salaries  deemed  temporary,   §  385,  subd.  5 338 

of  non-resident,  letters  of   196 

none  fixed,  except  on  unanimous  approval  of  governor,   chairman 
senate  finance  and  assembly  ways  and  means  committees,  §  385, 

subd.  5    338 

Salaries,  wages  and  compensation 

officers  and  employees  of  federal  government,  exempt  from,  §  359, 

subd.  2-f   266 

Sale  of  property  re  gain  or  loss,  §  353 237 

Scientific  corporations 

gifts  or  contributions  to,  deductible  from  net  income,  §  360,  subd.  10  303 
Secrecy  re  income  returns 

penalty  for  violation  of,   §  384,  subd.   1 337 

Senate  finance  committee 

chairman  to  approve  new  positions  and  fixed  salaries,  §  385,  subd.  5  338 
Sheriff 

to  levy  upon  and  sell  property  for  non-payment  of  tax,  §  380....   334 
warrant 

filed  with  county  clerk,  by,  §  380 ; 334 

for  collection  of  unpaid,  §  380 334 


398  INDEX   TO   INCOME   TAX 

PAGE 

Situs   of   income   from   salary   of  non-resident   discussed 196 

Source,  payment  at,  §  366,  subd.  1 319 

State  constitution,  is  the  "home  rule"  section  of,  violated 190 

State  treasury,  revenue  collected,  portion  of,  to,  §  382 336 

Statistics 

publication  of,  re  income  returns,  §  384,  subd.  1 337 

Stock 

gain  through  exchange,    §355 241 

shares  of,  exempt  locally,  when,   §  352 237 

Stock  or  securities 

exchange  of,  when  no  gain  or  loss,  §  354 238 

takes  place  of  those  exchanges,  when,   §  354 238 

Supervisor  of  town 

revenue  collected,  excess  of,   to,    §  382 336 

Taxable  year 

definition  of,  §  350,  subd.  4 227 

Taxes 

on  personal  property,  obligation  to  pay,  what,  §  385,  subd.  3 338 

what  deductible  from  net  income,  §  360,  subd.  3 276 

Taxes,  penalties,  interest 

comptroller  to  audit  and  state  account  for,  §  373 329 

Taxpayer 

accounting  period,  change  in,  separate  return,  §  370 326 

blank  forms,  failure  to  secure,  not  relieved  from  making  return, 

§  371     327 

definition  of,  §  350,  subd.  2   226 

exemption  of    (see   exemptions) 

failure  to  report  income 

comptroller  to  examine  books  and  records  and  take  testimony, 
§  373  329 

income,  return  re  to  comptroller  by  March  15,  §  371 327 

inventory  by,  when  required,  §  356 242 

may  file  application  for  revision  with  comptroller  within  one  year 

from  filing  of  return,  §  374 329 

net  income  (see  net  income) 

non-resident    (see  non-resident) 

partner,  liable  individually  for  income  tax,  §  364 312 

return     (see    return) ,     §  367 322 

Testimony,  comptroller  may  take,  §  373 329 

Towns 

revenue  collected 

apportioned   among,    §  382    336 


INDEX   TO   INCOME   TAX  399 

PAGE 

excess  of,  to  supervisor,  when,  §  382 336 

Trades  of  non-resident  individuals   in  state,   subject  to,   §  351 236 

Transactions  for  profit  deductible  from  net  income,  §  360,  subd.  5 ....   278 

Trust,  certain  personal  property  of,  exempt  locally,   §  352 237 

Trusts   and  estates    (see  estates  and  trusts) 
Treasurer  county 
revenue   collected 

apportioned   among  towns  and  cities,    §  382 336 

portion  of,  to,  §  382   336 

Unborn  or  unascertained  persons 

imposed  upon  net  income  of,   §  365,  subd.  3 316 

payable  by  fiduciary,  §  365,  subd.  3 316 

income  accumulated  in  trust  for,  §  365,  subd.  1-b 314 

United  States 

compensation  from,  of  officials  or  employees  thereof,  exempt  from, 

§  350,  subd.  2-f 266 

constitution    (see    Constitution) 

definition  of,  §  350,  subd.  9    235 

Unpaid 

attorney-general,  action  by,  for  recovery  of,   §  381 335 

warrant  to  issue  after  60  days,  §  380 334 

Validity  of,  not  impaired  by  illegal  provision,  §  385,  subd.  2 338 

Vocational  rehabilitation 

gifts    or    contributions    for,    deductible    from    net    income,    §  360, 

subd.    10    303 

Warrant  for  collection  of 

agent,  to  be  issued  to,   §  380 334 

amount  of,  lien  on  property,  §  380 334 

copy  to  be  filed  by  sheriff  with  county  clerk,  §  380 334 

returned   unsatisfied,    when,    §  380 334 

sheriff,  to  be  issued  to,   §  380 334 

Will  or  deed 

gross  income,  part  of,  payable  to  U.  S.,  state,  etc.,  or  to  charitable 

corporation,   deductible,   §  365,  subd.  2 315 

Will  or  trust 

imposed  upon  net  income  of,  §  365,  subd.  3 316 

payable  by  fiduciary,   §  365,  subd.  3 316 

income  held  for  future  distribution  under,  §  365,  subd.  1-c 314 

Withheld,  paid  to  comptroller  by  March  15,  §  366,  subd.  3 321 


400  INDEX  TO   INCOME  TAX 

PAGE 

Withholding  agent,  §   366,  subd.  2 208 

deductions  by,  of  2  per  cent  from  income  of  non-residents,   §  366, 

subd.    1     319 

definition  of,   §  350 226 

income,  non-residents,  deductions  from,  of  2  per  cent,  §  366,  subd.  1.  319 

paid  by,  to  comptroller  by  March  15,  §  366,  subd.  3 321 

return  of  tax  withheld  by,  to  be  made  to  comptroller  by  March  15, 

§  366,   subd.   3    321 

return  to  be  made  of  information  concerning  income 205 

withheld   by,    §  366,   subd.    1    319 

when    not   re-collected    from,    §  366,    subd.    5    321 

[See  Chapter  XXVI  for  Rules  and  Regulations  of  Comptroller  and  With- 
holding at  Source.] 


SUPPLEMENT  TO 

TAXATION  OF  CORPORATIONS 

AND 

PERSONAL  INCOME 

IN  NEW  YORK 


Containing  a  Commentary  on  all  important  matters 

affecting  the  Taxation  of  Persons  and  of 

Corporations  since  July    1,    1919 

including  the 

New  Rules  and  Regulations  of  the  State  Comptroller 

governing   the   administration  of  the  new 

Personal  Income  Tax  Law  with 

a  full  explanation  thereof. 


BY 

HENRY  M.  POWELL 

OF  THE  NEW  YORK  BAR 


NEW  YORK 
CLARK  BOARDMAN  CO.,  LTD. 

Law  Book  Dealers  and  Publisher* 

1920 


Copyright  1920 
by  HENRY  M.  POWELL 


PREFACE  TO  SUPPLEMENT 


The  perplexities  attendant  to  carrying  into  effect  the  new 
system  of  taxing  personal  incomes  in  the  State  of  New  York, 
involving  the  preparation  of  returns  by  more  than  half  a  million 
taxpayers  and  the  promulgation  of  the  State  Comptroller's  rules 
and  regulations,  have  made  it  incumbent  upon  the  author  to  add 
a  supplement  to  his  book  on  the  "  Taxation  of  Corporations  and 
Personal  Income  in  New  York  "  published  last  July.  Most  of 
these  regulations  like  the  New  York  Income  Tax  Act  itself  are 
taken  from  the  federal  procedure,  and  excellent  as  they  are,  there 
will  no  doubt  be  a  difference  of  opinion  as  to  their  validity  in 
many  cases  as  well  as  to  their  application  to  a  State  system  of 
income  taxation.  In  the  short  time  between  the  promulgation  of 
the  regulations  and  the  publication  of  this  supplement,  an  effort 
has  been  made  to  include  a  brief  commentary  on  the  more 
important  of  the  regulations.  In  this  I  have  received  the  efficient 
aid  of  Mr.  Glenn  Harrison  Speece  of  my  office,  who  wrote  Chapter 
XXXV,  and  who,  otherwise,  assisted  me  in  the  preparation  of  the 
manuscript. 

Sections  in  the  Personal  Income  Tax  Law  affecting  the  taxation 
of  personal  property  for  local  purposes,  rulings  and  decisions 
since  July  1,  1919,  governing  the  assessment  of  business  corpo- 
rations under  Article  9-a  of  the  Tax  Law,  and  those  relating  to  the 
assessment  of  personal  property  and  personal  income,  have  been 
commented  on  by  the  author  as  fully  as  circumstances  permitted. 

HENRY  M.  POWELL, 

Dated,  January  26,   1920. 


CONTENTS  TO  SUPPLEMENT 


CHAPTER  PAGE 

XXXI.     Exemption  of  Intangibles  from  Personal  Tax 401 

XXXII.     Exemption  of  Business  Corporations  from  Personal  Tax 408 

XXXIII.  Decisions  Affecting  Business  Corporation  Taxed  Under  Article 

9-a    418 

XXXIV.  Constitutionality  of  the  New  York  Personal  Income  Tax  Law.   426 
XXXV.     The  State  Comptroller's  Regulations 437 

XXXVI.     The  State  Comptroller's  Regulations  Continued  —  Withholding 

and  Information  at  the  Source 462 

XXXVII.     The  State  Comptroller's  Regulations  Continued  —  Non-resident 

Section    484 

Index  to  Supplement 503 

The  Text  of  Comptroller's  Regulations 515 

APPENDIX    1.     Cross  References  to  United  States  Regulations  and  State 

Comptroller's  Regulations    621 

II.     The  Text  of  the  New  York  Personal  Income  Tax  Act 624 

Index  to  Comptroller's  Regulations  and  to  Personal  Income  Tax  Act.  .  .  .   647 


CHAPTER  XXXI. 
EXEMPTION  OF  INTANGIBLES  FROM  PERSONAL  TAX. 

Principal  Tax  Events  in  Second  Half  of  1919 The  principal 

events  that  mark  corporate  taxation  and  the  administration  of  the 
new  Personal  Income  Tax  Law  in  the  State  of  New  York  during 
the  last  half  of  the  year  1919  may  be  classified  as  follows: 

I.  Changes  in  the  local  taxation  of  persons  and  of  cor- 
porations. 

II.  Statutory  changes  and  court  decisions  that  affect  the 
taxation  of  corporations  for  State  purposes. 

III.  The  promulgation  of  rules  and  regulations  affecting 
the  administration  of  the  new  Personal  Income  Tax  Law. 

I.     The  Local  Taxation  of  Persons  and  of  Corporations. 

Exemption  of  Intangibles. —  First :  As  to  the  local  taxation  of 
persons : 

Section  352  of  the  Personal  Income  Tax  Law  (article  16  of  the 
Tax  Law),  chapter  626  of  the  Laws  of  1919  provides: 

Exemption  of  certain  personal  property  from  taxation. —  "  Money  on 
hand,  on  deposit  or  at  interest,  bonds,  notes  and  choses  in  action  and  shares 
of  stock  in  corporations  other  than  banks  and  banking  associations, 
owned  by  any  individual  or  constituting  a  part  of  a  trust  or  estate  sub- 
ject to  the  income  tax  imposed  by  this  Article,  and  from,  tohich  any  income 
is  derived,  shall  not  after  July  thirty-first,  nineteen  hundred,  and  nineteen, 
be  included  in  the  assessment  rolls  of  the  several  tax  districts,  villages, 
school  districts  and  special  tax  districts  of  the  state." 

It  was  the  intention  of  the  framers  of  the  new  Income  Tax 
Law  to  exclude  intangible  personal  property  from  local  taxation. 
In  the  closing  hours  of  the  legislative  session,  the  words  "  and 
from  which  any  income  is  derived"  were  inserted  after  the 

401 


402  EXEMPTION    OF    INTANGIBLES 

enumeration  of  the  classes  of  intangible  property  to  be  exempted, 
and  the  result  has  been  to  make  the  entire  section  ambiguous. 
.Three  constructions  may  be  placed  upon  this  section: 

1.  It  may  be  interpreted   as  meaning  that   "money  on 
hand   (whether),  on  deposit  or  at  interest"  is  exempt  and 
that  the  words  "and  from  which  any  income  is  derived" 
shall  modify  or  limit  only  those  classes  of  intangible  prop- 
erty beginning  with  the  word  "  bonds ;"  in  other  words,  this 
construction  would  exempt  all  money  on  hand,  on  deposit, 
or  at  interest,  from  taxation,  whether  the  money  on  hand  or 
on  deposit  bore  interest  or  not.      The  other  classes  of  prop- 
erty beginning  with  the  word  "bonds"  must  b ear  interest 
to  be  free  from  personal  taxation. 

2.  A  second  construction  to  be  placed  upon  this  section, 
and  that  most  generally  adopted,  would  be  to  have  the  words 
"  and  from  which  any  income  is  derived  "  modify  each  one 
of  the  classes  of  intangible  property  referred  to  in  section  3 5 2. 
This  would  mean  that  if  a  bank  deposit  bore  interest,  it 
would  be  exempt  from  personal  property  taxation,  but,  if  not, 
it  would  be  subject  to  tax;  and  that  an  account  receivable 
or  a  note  which  bore  interest  would  be  exempt  from  tax,  and 
if  these  items  of  personal  property  bore  no  interest  they 
would,  on  the  other  hand,  be  subject  to  the  tax. 

3.  A  third  construction  which  has  heretofore  been  referred 
to   (chapter  27,  supra),  is  that  where  intangible  property, 
such  as  money  on  hand,  or  choses  in  action  represented  by 
outstanding  accounts,  is  used  in  a  going  business,  such  prop- 
erty should  be  exempt  from  taxation  on  the  ground  that  it 
is  used  productively  and  is  income  producing.      This  would 
be  on  the  general  theory  that  capital  employed  in  business 
will  yield  an  income.      (McLean  v.  Julian  Electric  Co.,  28 
Abb.  K  C.  349.) 


EXEMPTION    OF    INTANGIBLES  403 

Directions  to  Local  Assessors —  Keeping  in  mind  the  various 
constructions  that  can  be  placed  upon  the  statute,  it  can  easily 
be  understood  why  local  assessors  were  in  doubt,  when  the  time 
arrived  to  assess  or  complete  the  assessments  of  personal  property. 
Pursuant  to  the  injunction  contained  in  section  352  of  the  Tax 
Law,  to  exempt  certain  personal  property  from  local  taxation, 
the  assessors  in  the  various  tax  districts  of  the  State  preceded  to 
prepare  their  assessment-rolls  after  July  31,  1919,  or  to  com- 
plete the  assessment-rolls  that  had  already  been  commenced  at 
that  time.  In  accordance  with  supervisory  powers  exercised 
under  sections  171  and  I7l-a  of  the  Tax  Law,  the  State  Tax  Com- 
mission, under  date  of  May,  1919,  issued  a  bulletin  to  local 
assessors  containing  the  following  instructions: 

"  PERSONAL  INCOME  TAX  LAW 
(Chapter  627,  Laws  of  1919) 

This  is  the  most  important  piece  of  legislation  affecting  taxation 
recently  enacted.  It  became  a  law  on  the  14th  day  of  May,  1919. 

While  the  administration  of  the  law  is  under  the  jurisdiction  of  the 
State  Comptroller,  in  some  respects  it  affects  the  duties  of  local  assessors. 

First:  As  to  the  assessment  of  personal  property.  You  are  advised 
that  this  law  does  not  modify  your  duties  as  to  the  assessment  of  per- 
sonal property  in  the  year  1919,  provided  the  assessment  is  completed 
prior  to  July  31st.  Taxable  personal  property  should,  therefore,  be 
assessed  this  year  by  all  town  assessors  at  the  full  value  thereof  and  as 
required  by  section  6  of  the  tax  law.  Village  and  city  assessors,  whose 
rolls  are  not  completed  before  July  31st,  must  not  include  'money  on 
hand,  on  deposit  or  at  interest,  bonds,  notes  and  choses  in  action  and 
shares  of  stock  in  corporation  other  than  banks  and  banking  associations, 
owned  by  any  individual  or  constituting  a  part  of  a  trust  or  estate  sub- 
ject to  the  income  tax  *  *  *  and  from  which  any  income  is  derived.' 
This,  however,  does  not  apply  to  public  service  corporations  which  are 
taxable  as  heretofore  for  personal  property. 

After  this  year  assessors  must  omit  all  such  intangible  personal  prop- 
erty except  bank  stock,  but  must  include  taxable  tangible  personal  prop- 
erty except  when  owned  by  corporations  other  than  public  service  or  pub- 
lic utility  corporations  *  *  *." 


404  EXEMPTION    OF    INTANGIBLES 

Assessment  of  Personal  Property  in  the  City  of  New  York. —  The 
New  York  city  deputy  tax  commissioners  charged  by  law  with 
the  duty  of  making  personal  tax  assessments,  had  already  pro- 
ceeded with  that  work  under  section  889  of  the  New  York  charter 
when  the  Income  Tax  Law  went  into  effect.  On  October  1st 
the  assessments  had  already  been  completed  in  the  city  of  New 
York  and  the  books  were  open  for  examination  and  correction. 
All  taxpayers  finding  themselves  aggrieved,  under  the  provisions 
of  the  New  York  charter  (section  895),  were  required  to  make 
application  in  writing,  between  October  1st  and  December  1st, 
for  the  correction  of  assessments,  on  a  blank  form  provided  by 
the  department.  This  blank  form  provided  for  a  listing  of 
"  cash  on  hand  or  on  deposit  in  banks  or  trust  companies  from 
which  no  income  is  derived  (exclusive  of  savings  bank  accounts).7' 
It  also  provided  for  a  listing  of  bills  receivable  and  open  accounts 
and  for  "  all  other  notes,  loans,  bonds,  mortgages  and  debts  due 
or  to  become  due,  from  which  no  income  is  derived." 

In  the  items  of  " Deductions  Claimed"  the  city  tax  depart- 
ment took  the  position  that  "  indebtedness  evidenced  by  notes 
from  which  no  income  is  derived  "  might  be  offset,  but  that  per 
contra,  indebtedness  evidenced  by  notes  bearing  interest  or  from 
which  income  is  derived  could  not  be  offset.  This  position  was 
evidently  based  on  an  incorrect  conception  of  section  6  of  the 
Tax  Law,  which  provides,  among  other  things,  that  "no  such 
deduction  shall  be  allowed  by  reason  of  the  indebtedness  of  the 
owner,  contracted  or  incurred  in  the  purchase  of  non-taxable 
property."  There  is  no  warrant  for  the  refusal  of  the  tax  depart- 
ment to  permit  deduction  of  such  indebtedness  merely  because 
the  property,  viz.,  the  debt  represented  by  the  note  in  the  hands 
of  the  creditor  may  be  subject  to  an  income  tax  and  thus  free 
from  the  personal  tax  in  the  hands  of  the  creditor.  Such  debt 
cannot  be  said  to  arise  out  of  the  purchase  of  nontaxable  prop- 
erty, nor  is  it  the  property  of  the  debtor.  It  will  remain  for  the 
courts  to  decide  this  question  whenever  it  is  raised  by  the  taxpayer. 


EXEMPTION    OF    INTANGIBLES  405 

Should  Intangible  Property  Bear  Interest  on  Tax  Day,  to  be 
Exempt  from  Personal  Tax?  —  In  the  assessment  of  intangible 
personal  property,  the  Xew  York  City  Tax  Department  has  up 
to  the  present  time  maintained  that  such  property  must  bear 
interest  011  tax  day  in  order  that  it  may  be  said  to  be  property 
"  from  which  any  income  is  derived."  The  difficulty  of  this 
construction  is  that  while  exemption  from  personal  property  taxa- 
tion is  thus  based  on  its  condition  on  tax  day,  the  income-deriving 
power  of  the  property  may  only  become  effective  during  the  year, 
thus  money  in  the  cash  drawer,  or  in  pocket,  on  tax  day,  under 
a  narrow  construction  of  the  statute  is  not  income  producing, 
but  if  placed  in  bank  and  drawing  interest  on  the  same  day,  it 
is  exempt,  even  if  withdrawn  the  week  after  and  kept  idle  for 
the  remainder  of  the  year.  Bonds,  on  which  there  had  been  a 
default  in  interest  on  tax  day,  would  be  taxable,  even  though  the 
interest  were  paid  later  in  the  year.  Such  a  construction  leads 
to  absurdity.  What  meaning  can  be  placed  on  the  words  "  money 
on  hand/7  "  from  which  any  income  is  derived,"  if  by  "  money  on 
hand,"  under  the  ordinary  meaning  given  to  those  words,  we  mean 
money  in  the  pocket,  or  in  the  cash  drawer,  which  can  yield  no 
interest  ?  The  only  construction  that  does  not  result  in  nonsense 
and  in  a  double  tax,  such  as  is  prohibited  by  section  352,  is, 
that  property  that  is,  or  has  been,  income-producing  during  the 
year,  or  is  potentially  capable  of  producing  income,  when  used 
in  connection  with  a  going  business  in  the  State,  should  be  exempt 
from  personal  property  taxation.  ' 

It  is  believed  that  amendatory  legislation  early  in  1920  will 
lead  to  the  elimination  of  the  words  in  dispute  and  to  the  exemp- 
tion of  all  intangibles,  as  was  first  proposed  by  the  Tax  Revision 
Committee. 

Relief  from  Erroneous  Assessments  on  Intangible  Property Tax- 
payers who  have  not  filed  an  application  with  the  assessors  for  the 


406  EXEMPTION    OF    INTANGIBLES 

correction  of  an  erroneous  assessment  within  the  time  required 
by  law,  may  be  denied  relief  in  certiorari  under  section  250  of 
the  Tax  Law,  since  that  section  requires  that  due  application  to 
the  assessors  for  the  correction  of  the  assessment  must  be  alleged 
in  the  petition  for  certiorari  before  a  writ  can  be  obtained.  When 
there  was  no  jurisdiction  to  assess,  no  application  need  be  made 
for  cancellation  on  review  day.  People  ex  rel.  Powder  Co.  v. 
Feitner,  41  App.  Div.  544;  People  ex  rel.  Edison  Co.  v.  Feitner, 
99  App.  Div.  274. 

Proceedings  Under  the  New  York  Charter  for  Relief — Under 
section  934  of  the  New  York  charter,  a  delinquent  taxpayer  may 
be  relieved  from  an  erroneous  assessment  where  inability  to  pay 
the  tax  in  whole  or  in  part  is  shown,  or  where  the  defense  is  such 
that  a  court  of  equity  would  recognize  it.  City  v.  Halsey,  132 
App.  Div.  192.  Want  of  notice  is  not  sufficient,  but  relief  under 
this  section  could  be  granted  to  a  defendant  upon  whom  a  tax 
is  imposed  by  mistake  resulting  in  illegal  discrimination.  City 
v.  Holzderber,  44  Misc.  509;  affd.,  102  App.  Div.  615. 

In  connection  with  the  above,  -the  following  letter  from  the 
counsel  to  the  State  Tax  Department  will  be  of  interest : 

Letter  from  Counsel  to  the  State  Tax  Department  on  the  question  as  to 
whether  intangible  property  can  be  taxed  for  local  purposes: 

"  STATE  OF  NEW  YORK— TAX  DEPABTMENT, 

ALBANY,  May  28,  1919. 

Hon.  HENRY  M.  POWELL,  51  Chambers  Street,  New  York  City. 
DEAB  MB.  POWELL: 

Referring  to  your  letter  of  the  twenty-fourth  instant,  my  reply  has 
been  delayed  owing  to  the  fact  that  we  have  been  unable  until  to-day 
to  ascertain  the  reason  for  the  insertion  of  the  words  '  and  from  which 
any  income  is  derived '  in  section  352  of  the  personal  income  tax  law 
and  to  base  our  opinion  upon  the  apparent  intention  of  the  legislature. 

It  appears,  however,  that  these  words  were  deliberately  inserted  in  one 
of  the  later  drafts  of  the  bill  at  the  request  of  the  officials  of  New  York 


EXEMPTION  OF  INTANGIBLES  407 

City,  the  intent  being  to  tax  intangible  personal  property  locally  from 
which  no  income  is  derived.  This  apparently  would  apply  to  money  on 
hand  or  on  deposit,  bonds  or  other  securities  which  yield  no  income. 
The  result  of  this  amendment,  as  you  see,  will  be  to  subject  to  the  local 
personal  property  tax  a  class  of  intangible  personal  property  of  less  value 
and  less  able  to  pay  a  tax  than  other  intangibles  paying  interest  and 
exempt  from  taxation  from  the  personal  income  tax.  The  tax  on  such 
property  at  the  local  rate  in  many  instances  would  be  almost  confiscatory, 
working  a  considerable  injustice  to  the  holders  thereof.  *  *  * 

Very  truly  yours, 

(Signed)     WILLIAM  E.   SILL, 

Counsel." 


CHAPTER  XXXII. 

EXEMPTION  OF  BUSINESS  CORPORATIONS  FROM  LOCAL  PERSONAL 

TAX. 

Taxation  of  Foreign  Business  Corporations  on  Their  Personal 
Property — Are  foreign  corporations  taxable  unler  article  9-a, 
liable  to  a  local  tax  on  personal  property? 

Chapter  726  of  the  Laws  of  1917  imposed  a  franchise  tax  on 
manufacturing  and  mercantile  corporations  based  on  net  income 
returned  to  the  United  'States  Treasury  Department,  and  under 
section  219-j  of  the  law,  such  corporations,  domestic  and  foreign, 
were  exempt  from  the  personal  property  tax.  Section  219-j  in 
the  law,  as  originally  enacted  in  1917,  so  far  as  it  related  to  the 
above  question,  read  as  follows: 

"  Manufacturing  and  mercantile  corporations  exempt  from  personal 
property  tax  and  from  the  provisions  of  sections  twelve,  twenty-seven, 
one  hundred  and  eighty-two  and  one  hundred  and  ninety-two  of  the  Tax 
Law.  After  this  article  takes  effect,  manufacturing  and  mercantile  cor- 
porations shall  not  be  assessed  on  any  personal  property  which,  for  the 
purpose  of  this  exemption,  shall  include  such  machinery  and  equipment 
affixed  to  the  building  *  *  *.  After  this  article  takes  effect,  manu- 
facturing and  mercantile  corporations  shall  not  be  assessed  or  taxed  upon 
their  capital  stock,  as  provided  for  in  section  twelve  of  this  Chapter 


It  may  be  added,  in  explanation  of  the  above  extract  from  the 
original  law,  that  foreign  corporations  are  assessed  on  their  per- 
sonal property  under  section  7  of  the  Tax  Law,  and  domestic 
corporations  are  taxed  on  their  capital  stock  under  section  12. 
Section  7  of  the  Tax  Law  is  not  referred  to  specifically  either  in 
the  1917  law  or  in  the  1918  or  1919  amendments  to  the  law,  but 
no  one  questioned  the  right  of  foreign  manufacturing  and  mercan- 

408 


EXEMPTION     OF    BUSINESS     CORPORATIONS  409 

tile  corporations  to  exemption  from  the  personal  property  tax 
under  the  1917  law  and  there  were  no  assessments  for  local  taxa- 
tion in  1917  or  1918  of  either  foreign  or  domestic  corporations 
taxed  under  article  9-a. 

'The  assessment  of  capital  stock  of  domestic  corporations  under 
section  12,  not  only  included  personal  property,  but  it  also 
included  in  the  valuation  thereof  the  difference  between  the 
assessed  value  of  the  real  estate  and  the  actual  value  thereof. 
Prior  to  the  passage  of  the  Special  Franchise  Tax  Law  (chap.  712, 
L.  .1899)  local  assessors  had  attempted  to  tax  corporate  fran- 
chises as  personalty  under  section  12.  (People  ex  rel.  Manhattan 
Ey.  Co.  v.  Barker,  146  K  Y.  304.)  The  value  of  the  capital 
stock  also  included  so  much  of  the  surplus  profits  as  exceeded 
10  per  cent  of  the  capital.  (People  ex  rel.  Citizens  Electric 
Illuminating  Co.  v.  Neff,  26  App.  Div.  542.) 

Bearing  in  mind  the  statements  contained  in  the  last  two  para- 
graphs, it  seems  clear  that  the  words  "  personal  property  "  in 
the  first  sentence  of  the  section  quoted  were  used  in  a  different 
sense  than  the  words  "capital  stock"  in  the  second  sentence. 
Until  1918  no  one  doubted  that  foreign  corporations  should  be 
exempted  from  local  taxation,  but  in  that  year  there  was  a  con- 
solidation of  the  two  sentences  as  above  quoted  in  section  219-j  ; 
the  words  "manufacturing  and  mercantile"  were  omitted  (the 
law  now  applying  to  business  corporations  generally)  and  the 
provision  as  to  certain  fixtures  being  exempt  from  real  estate 
assessment  was  thrown  into  a  separate  section,  known  as  219-1, 
and  headed  "Personal  Property  Defined."  After  these  changes, 
section  219^j,  so  far  as  it  concerns  the  exemption  from  taxation  of 
corporations,  reads  as  follows: 


"  Section  219^j.  Exemption  from  Certain  Other  Taxation.—  After  this 
article  takes  effect,  corporations  taxable  thereunder  shall  not  be  assessed 
on  any  personal  property  or  capital  stock,  as  provided  for  in  section 
twelve  of  this  chapter  *  *  *." 


410  EXEMPTION     OF    BUSINESS     CORPORATIONS 

The  words  " taxable  thereunder'7  had  reference  to  section  209, 
which    provided    that    "every    domestic    corporation,     * 
and  every  foreign  corporation,  except  corporations  mentioned  in 
the  next  section  "    (which  provided  for  the  taxation  of  realty, 
casualty,  insurance,  public  utility  corporations,  etc.). 

The  above  statement  of  how  the  changes  in  the  original  statute 
arose,  does  not  show  an  intent  to  exclude  foreign  corporations 
from  the  exemption,  and  the  courts,  in  recent  decisions  have 
accepted  a  construction  of  this  section  exempting  all  corporations 
taxable  thereunder  from  local  personal  taxation.  In  People  ex 
rel.  Barcalo  Mfg.  Co.,  187  A.  D.  89,  Judge  Woodward  said: 

"The  Act  of  1917  inaugurated  a  new  policy  in  the  taxation  of  cor- 
porations *  *  *.  It  put  these  corporations'  under  the  provisions  of  a 
franchise  tax  in  lieu  of  taxes  on  personal  property  and!  in  this  regard, 
took  them  out  of  the  jurisdiction  of  local  assessors  *  *  *." 

In  a  more  recent  case,  People  ex  rel.  Franklin  Mill  v.  Collins, 
109  Misc.  1,  the  court  calls  attention  to  the  exemption  of  business 
corporations  from  local  taxation,  saying: 

"  The  language  of  the  section  quoted  is  broad  and  explicit  exempting 
manufacturing  corporations  from  all  assessments  on  any  of  its  personal 
property." 

In  the  Franklin  Mill  case,  the  point  was  raised  that  in  order 
to  exempt  corporations  from  assessment  under  the  Educational 
Law,  it  was  necessary  to  refer  to  the  Educational  Law  by  name 
or  by  section,  but  the  court  held  the  language  of  article  9-a  was 
sufficiently  broad  to  cover  the  exemption  of  all  corporations  taxed 
thereunder  from  all  local  taxation. 

In  a  special  bulletin  for  the  information  of  assessors,  issued 
by  the  New  York  State  Tax  'Commission  May,  1919,  directed  to 
all  assessors,  attention  was  called  to  the  fact  that 


EXEMPTION     OF    BUSINESS     CORPORATIONS  411 

"  The  so-called  Corporation  Income  Tax  Law  lias  been  amended  to  in- 
clude all  corporations,  except  those  mentioned  in  section  two  hundred 
and  ten  of  the  tax  law  *  *  *.  They  are  exempt  from  any  tax  on 
personal  property  *  *  *." 

It  appears  in  the  city  of  New  York  that  this  direction  was  not 
obeyed  or  carried  out  and  that  there  were  placed  on  the  rolls  about 
four  thousand  foreign  corporations,  whose  names  should  have 
been  omitted.  There  is  some  reason  to  believe  that  before  the 
tax  rate  is  finally  fixed  on  March  1st,  the  New  York  city  assessors 
will  see  the  obvious  error  that  has  been  committed  and  purge  the 
rolls  accordingly.  If  these  corrections  are  not  made,  the  courts 
will  undoubtedly  in  proper  cases  where  relief  is  applied  for  in 
accordance  with  the  statute,  cancel  the  assessments.  Should  these 
assessments  remain  against  the  names  of  foreign  corporations 
who  have  failed  to  make  ^application  for  relief,  they  would  still 
be  able  to  plead  a  jurisdictional  defense  at  any  stage  of  the  assess- 
ment or  tax  collection  procedure.  The  question  as  to  whether 
property  or  persons  are  assessable  under  the  law  is  jurisdictional 
and  is  always  open  to  inquiry  when  the  authority  to  make 
an  assessment  is  assailed.  Under  the  act  taxing  nonresidents 
doing  business  in  this  State,  the  jurisdiction  of  the  assessors 
depends  on  the  existence  of  the  facts  stated  in  the  statute  and 
they  cannot  acquire  jurisdiction  by  determining  that  they  have  it. 
(McLean  v.  Jephson,  123  N.  Y.  142.) 

Aside  from  the  jurisdictional  defense,  it  has  been  held  in  a 
number  of  cases  that  the  city  of  New  York  is  without  any  per- 
sonal remedy  to  collect  a  tax:  from  a  nonresident.  A  demurrer 
may  be  interposed  to  an  action  thus  brought  (City  of  New  York 
v.  McLean,  174  N.  Y.  374).  Neither  can  supplementary  pro- 
ceedings be  brought  to  collect  such  a  tax,  and  the  attempt  to 
give  a  tax  the  force  of  a  judgment  against  the  general  property 
of  a  nonresident  was  overruled  in  Matter  of  Maltbie,  223  N.  Y. 
230. 


4:12  EXEMPTION     OF    BUSINESS     CORPORATIONS 

Letter  from  counsel  to  State  Tax  Department  on  the  exemption  of  foreign 
corporations  from  the  personal  property  tax: 

"STATE  OF  NEW  YORK  — TAX  DEPARTMENT, 

ALBANY,  November  7,  1919. 

lion.  HENRY  M.  POWELL,  51  Chambers  Street,  New  York  City. 
DEAR  MR.  POWELL: 

1  am  in  receipt  of  your  letter  under  date  of  the  5th  inst.,  in  connection 
with  the  question  of  the  exemption  of  foreign  corporations  from  the  per- 
sonal property  tax. 

It  seems  to  me  there  can  be  no  question  but  that  the  clear  intent  of 
the  legislature  was  to  exempt  all  corporations  taxable  under  Article  9-A 
of  the  tax  law  from  the  personal  property  tax.  As  you  have  indicated 
the  original  draft  of  the  law  by  the  Mills  Committee  exempted  not  only 
the  '  personal  property  as  denned  in  Article  1  '  but  also  in  a  subsequent 
provision  '  corporations  liable  to  the  income  tax  shall  not  be  assessed  or 
taxed  upon  their  capital  stock  as  provided  in  section  12.'  The  section 
containing  this  language  appears  to  have  been  condensed  in  §  219-j  to 
'  corporations  taxable  thereunder  shall  net  be  assessed  on  any  personal 
property  or  capital  stock.'  In  order  that  no  question  might  arise  as  to 
whether  or  not  '  capital  stock  '  included  personal  property  the  words  '  per- 
sonal property  '  were  inserted  in  the  statute.  The  words  '  as  provided 
for  in  §  12  of  this  chapter '  were  intended  to  relate  only  to  '  capital 
stock '  but  as  you  state  by  improper  punctuation  a  doubt  has  been  cast 
upon  the  construction. 

Undoubtedly  this  construction  is  strengthened  by  the  recent  decision 
in  the  Frankttn  Mill  Co.  case  and  also  the  expression  of  the  court  in  the 
Barcalo  Manufactwing  Company  case.  Our  statement  in  relation  to  the 
applicability  of  §i§  12  and  27  of  the  tax  law  to  foreign  corporations  was 
not  strictly  correct.  Although  the  courts  do  not  seem  to  have  passed 
upon  the  question  it  is  altogether  probable  a  foreign  corporation  not 
liable  in  personam  for  a  tax  upon  its  personal  property  in  this  state 
would  not  be  '  liable  to  taxation  '  within  the  provisions  of  §  12. 

It  appears  from  the  many  communications  to  this  office  from  foreign 
corporations  that  this  class  of  corporations  has  been  assessed  generally 
in  your  city  for  the  personal  property  tax. 

Very  truly  yours, 

(Signed)       WM.  E.  SILL, 

Counsel,  State  Tax  Commission." 


EXEMPTION     OF    BUSINESS     CORPORATIONS  413 

Exemption  of  Corporations  from  Local  Taxes  on  Personal  Property 
Assessed  for  School  Purposes —  In  Chapter  XVII  of  this  book 
(p.  130),  reference  was  made  to  the  opinion  of  the  Attorney- 
General  (State  Department  Reports,  No.  81),  holding  that  cor- 
porations should  not  be  relieved  from  local  taxes  on  personal 
property  assessed  for  school  purposes.  The  Attorney-General 
assumed  then,  as  the  New  York  City  Tax  Department  did  later 
in  connection  with  the  assessments  of  foreign  corporations,  that 
because  the  Educational  Law  was  not  specifically  mentioned  in 
section  219-j  providing  for  the  exemption  from  local  taxation  of 
corporations  taxed  under  article  9-a,  the  property  of  such  corpo- 
rations might  still  be  assessed  in  school  districts  for  personal 
taxes.  The  inequity  of  this  construction  and  the  discrimination 
that  would  result  therefrom  in  tax  districts  where  there  was  no 
city  budget,  was  pointed  out  in  page  131,  chapter  17,  supra. 

In  People  ex  rel.  Franklin  Mill  v.  Collins,  109  Misc.  1,  the 
issue  as  to  the  assessment  of  corporations  on  personal  property 
for  school  purposes,  was  raised,  and  the  court  at  Special  Term, 
Supreme  Court,  Genesee  county,  held  that  the  relators  were 
entitled  to  the  relief  prayed  for  in  the  writ,  viz. :  exemption  from 
local  taxation  on  personal  property  for  school  purposes. 

Since  many  school  districts  are  dependent  for  their  mainte- 
nance largely  on  personal  taxes  so  assessed  it  may  be  expected 
that  amendatory  legislation  will  be  enacted  to  supply  this  lost 
revenue.  In  the  meantime,  an  appeal  in  this  case  has  been  taken 
to  the  Appellate  Division,  the  Attorney^General  intervening. 

The  opinion  of  Judge  Wheeler  in  the  Franklin  Mill  case  is 
given  below  in  full: 


414 


EXEMPTION     OF    BUSINESS     CORPORATIONS 


SUPREME  COURT  —  Genesee  County. 

The  People  of  the  State  of  Xew  York  on  the 
relation  of  FRANKLIN  MILL  COMPANY, 
against 

LEWIS  D.  COLLINS  and  others,  as  members  of 
and1  comprising  the  Board  of  Education  of 
Union  Free  School  District  No.  2,  of 
Batavia,  Genesee  County,  N.  Y. 

The  People  of  the  State  of  New  York  on  the 
relation    of    WIARD    PLOW    COMPANY, 

against 

LEWIS  D.  COLLINS  and  others,  as  members  of 
and  comprising  the  Board  of  Education  of 
Union  Free  School  District  Xo.  2,  of 
Batavia,  Genesee  County,  N".  Y. 

The  People  of  the  State  of  New  York  on  the 

relation  of  BATAVIA  RUBBER  COMPANY, 

against 

LEWIS  D.  COLLINS  and  others,  as  members  of 
and  comprising  the  Board  of  Education  of 
Union  Free  School  District  No.  2,  of 
Batavia,  Genesee  County,  N.  Y. 

The  People  of  the  State  of  New  York  on  the 
relation  of  JOHNSTON  HARVESTER  COM- 
PANY, 

against 

LEWIS  D.  COLLINS  and  others,  as  members  of 
and  comprising  the  Board  of  Education  of 
Union  Free  School  District  No.  2,  of 
Batavia,  Genesee  County,  N.  Y. 


EDWARD  A.  WASHBURN  for  the  relators. 

BAYARD  J.  STEDMAN  for  the  respondents. 

WHEELER,  J. —  The  above  entitled  proceedings  come  before  this  court 
by  virtue  of  writs  of  certiorari  to  review  the  action  of  the  Board  of  Edu- 
cation of  Union  Free  School  District  No.  2  of  Batavia  in  assessing  the 
relators  upon  personal  property  for  school  tax  purposes. 


EXEMPTION     OF    BUSINESS     CORPORATIONS  415 

It  is  conceded  the  relator  in  each  case  is  a  manufacturing  corporation 
within  the  definition  of  the  so-called  "  Emerson  Act "  section  208  sub- 
division 3  of  chapter  72(1  of  the  Laws  of  1917.  The  relators  contend  that 
by  virtue  of  section  219-j  of  that  act  they  are  exempted  from  any  assess- 
ment on  any  personal  property  after  the  act  in  question  took  effect. 

On  the  other  hand  the  respondents  contend  that  the  section  referred  to 
does  not  operate  to  withdraw  the  personal  property  of  manufacturing 
corporations  from  the  operation  of  the  General  Education  Law,  which 
provides  a  method  of  assessing  property  and  collecting  taxes  for  educa- 
tional purposes.  The  cases  presented  for  decision  raise  purely  questions 
of  law,  to  wit  —  a  judicial  interpretation  of  the  force  and  effect  of  the 
"  Emerson  Act  "  as  regards  the  Education  Law  and  the  power  to  tax 
manufacturing  corporations  on  personal  property  for  school  purposes. 

The  "  Emerson  Act "  materially  changed  the  system  of  taxation  in  the 
[State.  This  legislation  was  enacted  in  furtherance  of  a  report  of  a  com- 
mittee appointed  to  examine  and  report  on  the  general  tax  situation  in 
the  state.  This  report  recommended  "  (1)  The  abolition  of  the  present 
tax  on  personal  property,  (2)  the  withdrawal  of  general  business  cor- 
porations from  the  provisions  of  Section  182  of  the  tax  law;  and  (3)  the 
imposition  of  an  income  tax  on  individuals  and  general  business  corpora- 
tions, including  manufacturing  corporations."  Pursuant  to  this  report 
a  bill  was  drafted  and  passed  by  the  Legislature  which  became  chapter 
726  of  the  Laws  of  1917. 

This  act  imposes  a  tax  of  3  per  cent,  on  the  net  income  of  the  corpora- 
tion (section  215)  and  provides  that  from  the  revenue  so  received  the 
State  Comptroller  shall  pay  into  the  State  Treasury  two-thirds  of  the 
amount,  and  distribute  and  pay  the  balance  to  the  treasurers  of  the  sev- 
eral counties  where  the  corporations  are  located  (219-h). 

Section  219-j  then  provided  "After  thi-s  article  takes  effect  manufactur- 
ing  and  mercantile  corporations  shall  not  be  assessed  on  any  personal 
property"  *  *  *  "After  this  article  takes  effect  manufacturing  and 
mercantile  corporations  shall  not  be  assessed  or  taxed  on  their  capital 
stock  as  provided  for  in  section  twelve  of  this  chapter,  nor  shall  they  be 
required  to  pay  the  franchise  tax  imposed  by  section  one  hundred  and 
eighty-two  of  this  chapter." 

The  language  of  the  section  quoted  is  broad  and  explicit,  exempting 
manufacturing  corporations  from  all  assessments  on  any  of  its  personal 
property.  The  respondents,  however,  contend  that  inasmuch  as  the  Act  of 
1917  does  not  in  express  terms  refer  to  or  repeal  any  of  the  provisions 
of  the  Education  Law,  and  as  the  Education  Law  constitutes  a  separate 
and  distinct  chapter  of  the  Statutes  of  the  State  it  could  not  have  been 


416  EXEMPTION     OF    BUSINESS     COEPORATIONS 


the  intention  of  the  Legislature  by  chapter  726  of  the  Laws  of  1917  to  in 
any  manner  modify  or  alter  the  provisions  of  the  Education  Law,  and 
that  the  personal  property  of  manufacturing  and  mercantile  corporations 
is  still  taxable  for  the  purpose  of  raising  revenue  for  educational  pur- 
poses. To  a  certain  extent  the  Education  Law  does  constitute  a  separate 
and  distinct  chapter,  but  we  shall  presently  see  that  certain  sections  of 
that  law  must  necessarily  be  read  and  construed  in  connection  with  the 
Tax  Law  of  the  State  of  which  chapter  726  of  the  Laws  of  1917  forms  a 
part. 

Section  410  of  the  Education  Law  provides  that  "  after  a  tax  shall  have 
been  voted  by  a  district  meeting  for  a  purpose  arising  during  the  current 
school  year  the  trustees  shall  assess  it,  and  make  out  the  tax  list  therefor 
and  annex  thereto  their  warrant  for  its  collection." 

Section  411  of  the  Law  provides  that  "  school  district  taxes  shall  be 
apportioned  by  the  trustees  upon  real  estate  within  the  boundaries  of 
the  district  which  shall  not  be  by  law  exempt  from  taxation."  The  second 
subdivision  of  the  section  provides  that  "  The  trustees  shall  also  appor- 
tion the  district  taxes  upon  all  persons  residing  in  the  district,  and  upon 
all  corporations  liable  to  taxation  therein,  for  the  personal  estate  oivned 
by  them  and  liable  for  taxation." 

Section  J^12  provides  for  the  purpose  of  ascertaining  the  valuation  of 
taxable  property,  the  trustees  shall  ascertain  it  "  so  far  as  possible  from 
the  last  assessment  roll  of  the  town,"  etc. 

It  is  to  be  noted  by  the  Education  Law  that  the  assessment  against 
corporations  is  to  be  only  on  "  the  personal  estate  owned  by  them  and 
liable  for  taxation." 

The  Education  Law  nowhere  undertakes  to  define  what  personal  property 
of  a  corporation  is  "  liable  for  taxation."  It  nowhere  lists  the  personal 
property  to  be  exempt.  Consequently  in  order  to  ascertain  for  what  per- 
sonal property  a  corporation  may  be  assessed  or  taxed  we  necessarily 
must  consult  and'  read  the  other  Statutes  of  the  State,  and  particularly 
the  General  Tax  Law  of  the  State  declaring  the  exemptions  from  taxation. 
It  follows  that  the  Education  Law  is  not  an  entirely  separate  and  inde- 
pendent statute,  but  one  to  be  interpreted  and  construed  in  connection 
with  the  General  Tax  Law,  and  if  by  the  General  Tax  Law  certain  prop- 
erty is  legally  exempted  from  all  taxes  in  lieu  of  a  percentage  of  income 
to  be  paid,  then  it  remains  no  longer  taxable  even  for  school  purposes. 
To  illustrate,  real  estate  mortgages  are  required  to  pay  a  recording  tax, 
and  when  paid  the  holder  of  the  mortgage  is  entitled  to  exemption  from 
personal  tax  on  that  security  for  the  amount  represented.  We  think  no 
one  would  contend  that  the  trustees  of  a  school  district  could  claim  the 


EXEMPTION     OF    BUSINESS     CORPORATIONS  417 

right  to  consider  such  mortgages  property  "  liable  for  taxation  ''  because 
the  Act  exempting  them  from  further  taxation  contained  no  reference 
to  the  Education  Law.  What  we  say  in  reference  to  mortgages  is  equally 
true  of  real  estate  purchased  by  pension  money. 

We,  therefore,  are  of  the  opinion  that  in  order  to  limit  the  jurisdiction 
of  school  trustees  to  assess  personal  property  of  manufacturing  corpora- 
tions, it  was  not  necessary  for  the  Legislature  to  make  specific  reference 
to  the  Education  Law  —  but  it  was  sufficient  by  appropriate  language  to 
enlarge  the  exemption  and  place  the  personal  property  of  corporations  in 
the  list  of  property  exempted. 

The  Act  of  1917  simply  limited  the  class  of  property  against  which 
si-hool  boards  could  assess  taxes  for  school  purposes.  This  the  Legisla- 
ture has  power  and  authority  to  do.  And  the  Act  is  just  as  effective  as 
though  it  had  undertaken  to  amend  the  Education.  Law  by  an  added 
section  to  that  Act  itself.  Indeed  it  is  manifest  that  the  method  pursued 
in  the  "  Emerson  Act "  was  the  appropriate  method  of  exempting  cor- 
porate personal  property  not  only  from  general  taxation  but  from  taxa- 
tion for  school  purposes  as  well. 

We  find  nothing  ambiguous  in  the  Act  of  1917  so  far  as  the  question 
now  under  consideration  is  concerned.  It  may  be  that  the  statute  works 
a  hardship  on  certain  school  districts.  As  to  the  wisdom  of  the  law  the 
courts  have  nothing  to  do.  The  Legislature  is  the  sole  judge  of  those 
questions. 

"All  statutes  must  have  a  construction  according  to  the  language  em- 
ployed, and  where  no  ambiguity  exists  courts  cannot  correct  supposed 
defects."  Denton  v.  Wickwire,  54  N.  Y.  226. 

Where  language  is  apt  and  the  construction  plain,  it  cannot  be  departed 
from  in  deference  to  any  supposed  intent. 

Matter  of  Village  of  MiddUtown,  82  X.  Y.  196. 

Matter  of  Simmons,  151  App.  Div.  444. 

People  v.  Long  Island  R.  R.  Co.,  194  N.  Y.  130. 

We  are  of  the  opinion  the  relators  are  entitled  to  the  relief  asked. 

So  ordered. 


CHAPTER  XXXIII 

DECISIONS    AFFECTING    BUSINESS    CORPORATIONS    TAXED    FOR 
STATE  PURPOSES   UNDER  ARTICLE   9-A 

Decision  in  Connecticut's  Corporation  Income  Tax  Case — Refer- 
ence has  heretofore  been  made  in  Chapter  XIV,  supra,  page  98, 
to  the  case  of  the  Underwood  Typewriter  Co.  v.  C fuimberlain^ 
102  Atlantic  600,  in  which  the  question  of  the  constitutionality 
of  Connecticut's  franchise  tax  law  based  on  net  income,  was 
involved.  The  highest  court  in  Connecticut  has  now  affirmed  the 
constitutionality  of  the  act.  An  important  question  involved  in 
the  case,  and  one  which  must  be  of  interest  to  New  York  corpora- 
tions, is  the  apportionment  of  net  income  under  the  Connecti- 
cut act,  which  is  substantially  like  the  New  York  statute.  A 
tax  of  two  per  cent,  is  imposed  on  the  net  income  of  manufac- 
turing and  mercantile  corporations  based  on  their  return  to  the 
United  States  Treasury  Department,  and  corporations  doing 
business  within  and  without  the  State  may  apportion  the  net 
income  011  the  basis  of  tangible  property  in  and  out  of  the  State. 

The  plaintiff,  the  Underwood  Typewriter  Co.,  a  corporation 
organized  under  the  laws  of  Delaware,  was  entirely  engaged  in 
the  manufacture  of  typewriters  in  Hartford,  in  the  State  of 
Connecticut,  although  its  sales  office  and  business  headquarters 
were  outside  the  State,  in  the  city  of  Xew  York.  Its  income  was 
principally  derived  from  the  sale  of  typewriters  so  manufac- 
tured, but  it  also  received  some  income  from  repair  work,  invest- 
ments, and  the  sale  of  goods  manufactured  by  others.  A  large 
percentage  of  tangible  property  being  located  in  the  State  of 
Connecticut,  a  tax,  paid  under  protest  and  duress,  was  imposed 

418 


DECISIONS    AFFECTING   BUSINESS    CORPORATIONS  419 

on  that  proportion  of  the  corporation's  net  income,  the  corporation 
contending  that  the  proportion  of  tangible  property  in  the  State 
was  an  improper  measure  of  the  company's  intrastate  income,  and 
that  the  act  was  unconstitutional. 

The  questions  coming  before  the  court,  and  raised  on  appeal 
were  as  to  the  constitutionality  of  the  statute. 

1.  That  the  provisions  of  the  statute  providing  for  a  disclosure 
of  its  report  made  to  the  Federal  government  for  income  tax 
purposes  was  an  unreasonable  search  and  seizure  in  violation  of 
section  2,   article  4  of  the  United  States  Constitution  and  con- 
trary to  the  Fourth,  Fifth  and  Fourteenth  Amendments  thereof. 

2.  That  the  tax  imposed  a  burden  on  interstate  commerce  con- 
trary to  section  8,  article  1  of  the  United  States  Constitution. 

3.  That  the  statute  violated  the  Fourteenth  Amendment  by 
taking  property  beyond  the  jurisdiction  of  the  State  of  Connecti- 
cut,  thus  depriving  the   company  of  its   property  without  due 
process  of  law. 

The  court  first  passed  on  the  question  as  to  whether  the  tax  was 
an  excise  tax,  as  claimed  by  the  State,  or  a  property  tax,  as 
claimed  by  the  Underwood  Typewriter  Co.,  or  an  income  tax,  as 
contended  by  the  amicus  curiae,  and  upheld  the  State's  conten- 
tion that  it  was  an  excise  tax  paid  for  the  corporation's  privilege 
of  doing  business  in  the  State;  that  it  was  not  a  property  tax 
because  it  was  not  payable  unless  there  was  net  income.  It  was 
not  an  income  tax  because  it  was  not  imposed  on  the  corporation 
unless  it  was  engaged  in  business  in  the  State  on  the  basis  of  such 
income  arising  from  business  so  transacted. 

The  issue  raised  as  to  the  disclosure  of  information  contained 
in  the  Federal  return  was  dismissed  on  the  ground  that  it  was 
a  convenience  to  taxpayers  and  a  matter  of  economy  in  the  admin- 
istration of  the  state  law  and  was  no  violation  of  the  constitu- 
tional privilege  of  the  corporation.  The  objection  that  the  tax 


420  DECISIONS   AFFECTING   BUSINESS    CORPORATIONS 

was  a  burden  on  interstate  commerce  was  overcome  by  the  deci- 
sion in  United  State  Glue  Co.  v.  Town  of  Oak  Creek,  247  U.  S. 
321,  recently  decided  by  the  United  States  Supreme  Court  and 
referred  to  in  Chapter  XIV,  page  98,  supra,  in  which  the  Federal 
court  held  that  the  tax  on  net  income  does  not  discriminate  or 
interfere  with  interstate  commerce.  The  objection  that  the 
statute  violated  the  Fourteenth  Amendment  by  taking  property 
beyond  the  jurisdiction  of  the  State  of  Connecticut  and  depriv- 
ing the  plaintiff  of  property  without  due  process  of  law,  was  met 
by  the  statement  that  this  argument  was  based  on  the  erroneous 
theory  that  the  tax  was  an  income  tax  and  not  a  privilege  tax 
measured  by  net  income,  in  the  instant  case  to  only  a  part  of  the 
net  income.  The  real  issue  was,  whether  a  privilege  tax  of  two 
per  cent,  on  forty-seven  per  cent,  of  the  corporation's  income  was 
a  tax  on  business  outside  the  State,  and  the  facts  in  the  case 
showed  that  the  tax  imposed  by  the  State  of  Connecticut  was 
entirely  reasonable  and  a  proper  apportionment  made  on  the 
basis  of  the  figures  presented. 

There  is  a  dissenting  opinion  by  Judge  Wheeler  in  which  he 
holds  that  the  apportionment  of  the  tax  on  the  basis  of  tangible 
property  in  and  out  of  the  State  brings  into  question  a  measure 
of  income  which'  was  not  earned  there;  that  the  apportionment 
was  not,  in  fact,  based  upon  property  but  on  income  earned  in 
the  State  and.  if  the  basis  of  apportionment  in  the  law  was  not 
reasonable,  the  act  itself  was  unconstitutional. 

This  case  will  probably  be  carried  to  the  United  States  Supreme 
Court  and  since  the  measure  of  apportioning  the  Connecticut  tax 
is  substantially  like  ours,  the  final  result  will  be  worth  noting  by 
corporate  taxpayers  in  New  York. 

The  Excess  Profits  Tax  not  Deductible —  The  Court  of  Appeals, 
on  July  15,  1919,  affirmed  the  order  of  the  Appellate  Division 
(Justices  Hiscock  and  Andrews  dissenting)  in  People  ex  rel.  Bar- 


DECISIONS   AFFECTING   BUSINESS    CORPORATIONS  421 

calo  Mfg.  Co.  v.  Knapp,  187  App.  Div.  89.  The  decision  upholds 
the  State  Tax  Commission's  ruling  that  the  total  net  income  upon 
which  corporations  are  obliged  to  pay  a  franchise  tax  under  article 
9-a  of  the  Tax  Law,  was  the  entire  net  income  returned  to  the 
United  States  Treasury  Department  from  which  the  excess  profits 
tax  could  not  be  deducted.  There  is  little  in  the  Court  of  Appeals 
opinion  that  will  add  to  the  strength  of  the  unanimous  opinion 
of  the  Appellate  Division,  but  it  treats  the  question  of  what  is 
"  net  income  "  from  a  broader  viewpoint.  The  argument  in  the 
opinion  is  divided  into  two  parts,  the  first  of  which  points  out 
that  the  intent  of  the  New  York  law  was  to  tax  corporations  on 
their  entire  net  income  without  any  deduction  or  credit  for  the 
excess  profits  tax,  and  the  second  shows  that  under  the  Federal 
income  tax  statute  the  net  income  upon  which  the  tax  was  to  be 
paid  to  the  United  States  was  the  net  income  without  deduction 
of  excess  profits  tax.  The  salient  features  of  the  Court  of 
Appeals  opinion  are  stated  below: 

"  The -language  of  the  statute  expresses  clearly  the  legislative  inten- 
tions and  enactments.  The  tax  imposed  was  upon  the  entire  net  income 
of  each  year.  This  conclusion  is  repetitiously  expressed  and  is  in- 
dubitable. A  definition  of  the  words  "  net  income  "  was  not  incorporated 
in  the  statute.  The  meaning  given  and  characterizing  them  through  and 
as  used  in  the  Federal  statutes  was  their  meaning  as  used  in  the  state 
statute.  The  conditions  and  limitations,  expressed  in  the  Federal 
statutes,  creating  their  office  and  effect  under  those  si.atul.es  are  adopted 
by  (he  state  statute.  Tt  used  the  term  net  income  asi  established  by  the 
Federal  statutes.  While  the  net  income  is  declared  by  the.  statute  to  be 
presumably  the  same  as  the  income  upon  which  the  corporation  is  re- 
quired to  pay  a  tax  to  the  United'  States,  it  is  clear  and  certain  that 
within  the  legislative  intention  the  net  income  of  the  statute  is  that  re- 
turned or  reported  to  the  United  States  in  accordance  with  the  Federal 
statutes.  While  the  basis  for  the  computation  of  the  commission  is  the 
returned  net  income  under  the  Federal  statutes,  the  commission  is  free 
to  fix,  from  the  return  and  any  other  information,  the  true  and  correct 
amount  of  the  net  income,  but  not  to  change  the  nature  or  definition  of  it. 


422  DECISIONS   AFFECTING   BUSINESS    CORPORATIONS 

The  language  of  section  5  of  chapter  276  of  the  Laws  of  1918,  which  I 
have  already  stated  makes  certain1  and  mandatory  the  conclusion  that  the 
relator  is  governed'  and  obligated  by  the  provisions  of  article  9-A  of  the 
tax  law  existing  and  in  force  on  November  first,  1918.  It  is  equally 
certain  that  those  provisions  wore  to  be  read  and  enforced,  in  so  far  as 
Federal  statutes  were  involved,  with  the  Federal  statutes  existing  and 
in  force  on  that  date.  In  case  section  209  of  article  9-A  had  originally 
read  as  chapter  276  of  the  Laws  of  1918  framed  it,  the  net  income 
returned  to  the  United  States  in  any  year,  if  true  and  correct,  would,  in 
virtue  of  the  statute,  be  the  net  income  for  that  year  under  the  state 
statute,  the  tax  commission  was  given  no  power  to  change  or  correct  it 
other  than  to  make  it  as  established  by  the  then  existing  Federal  statute, 
true  and  correct  in  amount.  To  hold  otherwise  would  be  to  pervert 
legislative  intention. 

"  It  remains  for  us  to  determine  whether  or  not  the  term  net  income, 
within  the  meaning  and  effect  of  the  Federal  statutes,  excludes  the 
amount  of  any  excess  profits  tax  imposed  by  act  of  Congress  and  assessed 
for  the  year  upon  the  taxpayer.  Under  the  language  of  those  statutes 
the  problem  is  not  difficult;  the  solution  is  not  uncertain.  It  should  be 
borne  in  mind  that  we  are  to  reach  the  correct  comprehension  of  the  net 
income  which  those  statutes  require  to  be  returned!  or  reported  to  the 
United  States  treasury  department,  and  not  of  the  amount  those  statutes 
require. the  tax  to  be  paid  upon.  The  Federal  statutes  define  the  taxable 
net  income  as  including  gains,  profits  and  incomes  from  manifold 
sources,  subject  only  to  such  exemptions  and  deductions  as  they  allow. 
(Laws  of  1916,  chapter  463,  sections  l(a),  2;  Laws  of  1917,  chapter  63, 
title  12,  section  1200.)  They  state  the  exemptions  they  allow  (Laws  of 
1916,  chapter  463,  sections  4,  7,  11;  Laws  of  1917,  chapter  63,  title  12, 
section  1200)  and'  the  deductions.  (Laws  of  1916,  chapter  463,  sections 
5,  12;  Laws  of  1917,  chapter  63,  sections  1201,  1203.  1208.)  Neither  the 
exemptions  nor  the  deductions  include  the  income  taxes  or  the  excess 
profits  tax.  '  The  tax  shall  be  computed  upon  the  net  income,  as  thus 
ascertained.'  (Chapter  463,  sections  8,  13;  Laws  of  1917,  chapter  63, 
sections  1204,  1208.)  The  sections  I  have  referred1  to  have  no  relation 
to  the  excess  profits  tax.  They  relate  to  the  income  tax  or  the  war 
income  tax.  Within  them  or  within  the  other  sections  relating  to  those 
taxes  it  is  not  enacted  that  the  net  income  to  be  returned  is  affected  by 
or  dependent  in  any  way  upon  those  taxes  or  the  excess  profits  tax. 
Title  11  of  chapter  63  of  the  Laws  of  1917  provides  for  the  excess  profits 
tax.  The  discussion  does  not  require  consideration  of  it.  The  act  of 
1917  amended  title  1  of  the  act  of  1916  by  adding  to  part  3.  relating  to 
general  administrative  provisions,  six  new  sections  (Laws  of  1917,  chap- 


DECISIONS   AFFECTING   BUSINESS    CORPORATIONS  423 

ter  63,  section  1211),  of  which  section  29  is:  'That  in  assessing  income 
tax  the  net  income  embraced  in  the  return  shall  also  be  credited  with  the 
amount  of  any  excess  profits  tax  imposed  by  the  act  of  Congress  and 
assessed  for  the  same  calendar  or  fiscal  year  upon  the  taxpayer,  and,  in 
the  case  of  a  member  of  a  partnership,  with  his  proportionate  share  of 
such  excess  profits  tax  imposed  upon  the  partnership.'  This  provision 
does  not  affect  the  definition  of  the  words  '  net  income  '  as  established  by 
the  statute.  It  provides  that  in  the  case  of  the  corporation,  partnership 
or  individual  liable  for  the  excess  profits  tax,  the  net  income  returned  to 
the  United  States  shall,  in  assessing  the  income  tax  upon  that  net  income, 
be  credited  with  the  amount  of  the  excess  profits  tax.  The  net  income  is 
not  changed.  A  part  of  it  equal  to  the  sum  of  the  excess  profits  tax  is 
not,  in  such  case,  taxed.  The  corporations,  partnerships  or  individuals 
who  are  not  assessed  the  excess  profits  tax  are  assessed  upon  the  net 
income  for  the  income  taxes.  The  net  incomes  of  those  who  were  and 
who  were  not  assessed  were  ascertained  under  the  same  enactments  and 
based  upon  identical  specifications. 

"  The  return  by  the  relator  of  its  annual  net  income  to  the  United 
States  treasury  department  showed  the  annual  total  net  income  to  be 
$256,201.75.  It  was  not  inaccurate.  The  statute  did  not  authorize  the 
state  tax  commission  to  credit  that  net  income  with  the  sum  of  the 
excess  profits  tax  assessed  upon  the  relator  or  to  assess  the  franchise  tax 
upon  the  sum  of  it  exceeding  that  tax. 

"  The  order  should  be  affirmed,  with  costs. 

"  Cuddeback,  Cardozo,  Pound  and  McLaughlin,  JJ.,  concur;  Hiscock, 
Ch.  J.,  and  Andrews,  J.,  dissent. 

"  Order  affirmed." 

What  is  a  Holding  Corporation?  —  Section  209  of  the  Tax 
Law  exempts  "  holding  corporations "  from  the  provisions  of 
article  9-a  under  which  business  corporations  are  taxed  upon 
their  net  income,  and  taxes  "  holding  corporations "  on  their 
capital  stock  under  section  182  (article  9)  of  the  Tax  Law. 
Attention  has  been  called  in  chapter  12  supra-,  to  the  Tax  Depart- 
ment's ruling  as  to  what  is  a  holding  corporation.  Its  definition 
has  been  somewhat  amplified  by  another  ruling  under  date  of 
June  27,  1919,  in  which  the  Tax  Department  says: 

"  It  should  be  noted  that  there  are  two  concurrent  pur- 
poses.    First,  the  "  owning "  and  second,  the  "  holding  of 


424  DECISIONS   AFFECTING   BUSINESS    CORPORATIONS 

stocks.77  The  word  and  is  used  conjunctively  and  the  three 
words  here  used  together  indicate  a  permanency  of  ownership 
for  a  specific  purpose.  The  purpose  of  a  holding  company  as 
indicated  in  all  the  cases  examined,  is  to  control  the  manage- 
ment and  dictate  the  conduct  of  the  affairs  of  another  or  other 
corporations.  *  *  * 

"  It  does  not  apply  merely  to  owning  corporations  but  to 
purely  holding  corporations.  If  the  word  "  holding  "  before 
the  word  "  corporations  77  be  eliminated  from  the  sentence 
then  all  companies  deriving  their  principal  income  from 
stocks  and  bonds  would  be  entitled  to  exemption  from  the 
provisions  of  Article  9-a  of  the  tax  law  and  the  contention 
of  certain  securities  holding  companies  could  not  be  gainsaid. 
But  the  word  "holding,"  as  used  in  the  statute  before  the 
word  "  corporations/7  must  have  some  definite  meaning  as 
affecting  the  word  corporations  and  it  is  difficult  to  ascribe 
any  such  meaning  except  that  of  the  ordinary  significance  in 
business,  that  is  to  say,  that  of  a  company  holding  stocks  for 
purposes  of  control.77 

The  statute  evidently  meant  something  more  than  a  corporation 
that  was  exclusively  a  so-called  holding  corporation  because  it  used 
the  words  "  whose  principal  income  is  derived  from  holding  the 
stocks  and  bonds  of  other  corporations.77  Apparently,  it  referred 
to  corporations  that  are  engaged  in  other  business  besides  holding 
the  stocks  and  bonds  of  other  corporations,  otherwise,  there  would 
be  no  significance  in  the  words  "  whose  principal  income  is  derived 
from  holding  the  stocks  and  bonds  of  other  corporations.77  The 
1917  Law  had  reference  to  manufacturing  and  mercantile  corpo- 
rations dealing  in  tangible  property,  so  that  the  definition  of  what 
is  a  holding  corporation  only  became  important  with  the  amend- 
ment of  1918.  Holding  corporations  were  not  taxed  under 
article  9-a  in  1917  as  manufacturing  or  mercantile  corporations 
on  net  income.  The  word  "  control "  to  which  reference  is  made 


DECISIONS   AFFECTING   BUSINESS    CORPORATIONS  425 

in  the  ruling  of  the  State  Tax  Department  does  not  appear  in  the 
statute,  and  if  it  is  intended  to  restrict  the  exemption  to  corpora- 
tions controlling  as  well  as  holding  the  stocks  and  bonds  of  other 
corporations,  amendatory  legislation  seems  to  be  necessary.  A 
corporation  might  have  been  organized  to  hold  and  control  the 
stocks  of  other  corporations  and  by  selling  a  portion  of  its  majority 
interest,  might  lose  control  of  the  subsidiary  corporations.  If  it 
did  not  change  the  nature  of  its  business,  would  it  not  still  be  a 
holding  corporation  ? 

Movable  Machinery  of  Business  Corporations  Exempt A 

decision  of  the  Court  of  Appeals  on  January  20,  1920,  has  now 
finally  affirmed  the  order  of  the  Appellate  Division,  which,  in 
turn,  affirmed  the  order  of  the  Special  Term  of  the  Supreme 
Court,  New  York  county,  in  People  ex  rel.  General  Chemical  Co. 
v.  Cantor,  105  Misc.  62.  The  decision  of  Judge  Delehanty  in  the 
lower  court  referred  to  in  chapter  XVI  supra,  p.  123  (See  opinion 
p.  353  supra)  held  that  movable  machinery  and  equipment  of 
manufacturing  and  mercantile  corporations  taxed  under  article  9-a 
could  not  be  assessed  for  local  purposes  either  as  real  or  personal 
estate.  Permission  had  been  granted  to  the  City  of  New  York  to 
appeal  to  the  Court  of  Appeals  from  the  unanimous  affirmance  of 
the  Appellate  Division,  and  the  final  affirmance  of  the  Court  of 
Appeals  seems  to  settle  this  question. 

It  should  be  noted,  however,  that  under  the  1919  amendment 
to  section  219-1,  in  addition  to  boilers,  ventilating  apparatus, 
elevators,  power  generating  apparatus,  the  following  machinery 
and  equipment  will  still  continue  to  be  taxed  as  real  estate  where 
used  in  connection  with  a  building : —  "  plumbing,  heating,  light- 
ing and  "  *  *  "  equipment  for  the  distribution  of  heat, 
light,  power,  gases  and  liquids,  nor  (and)  any  equipment  consist- 
ing of  structures  or  erections  to  the  operation  of  which  machinery 
is  not  essential." 


CHAPTER  XXXIV 

CONSTITUTIONALITY  OF  THE  NEW  YORK  PERSONAL  INCOME  TAX 

LAW 

(See  Chapter  24,  supra.) 

In  the  case  of  Travis,  as  Comptroller,  v.  Yale  &  Towne  Mfg. 
Co.,  decided  August  6,  1919,  in  the  United  States  District  Court 
of  New  York,  the  constitutionality  of  the  personal  income  tax 
law  was  raised  insofar  as  it  affects  the  taxation  of  nonresidents, 
by  imposing  a  tax  upon  the  entire  net  income  from  all  property 
owned  and  from  every  business,  trade,  profession  or  occupation 
carried  on  in  this  State. 

The  facts  in  the  case  are  stated  in  the  opinion  of  Judge  Knox, 
which  is  given  at  length  below.  The  complainant,  a  Connecticut 
corporation,  sued  to  enjoin  the  collection  of  the  tax  on  the  ground 
that  the  New  York  statute  was  unconstitutional,  and  in  particular, 
was  contrary  to  and  in  violation  of  article  1,  section  8  of  the 
federal  constitution,  in  that  it  interfered  with  and  directly  bur- 
dened interstate  commerce;  that  it  was  contrary  to  and  in  viola- 
tion of  article  1,  section  10  of  the  constitution,  in  that  it  impaired 
the  obligation  of  contracts  between  the  complainant  and  its 
employees;  that  it  was  in  violation  of  section  2,  article  4  of  the 
constitution,  in  that  it  deprived  citizens  of  the  states  of  Con- 
necticut and  New  Jersey  of  the  privileges  and  immunites  enjoyed 
by  the  citizens  of  New  York,  and  further,  that  it  was  in  violation 
of  the  Fourteenth  Amendment  of  the  said  constitution,  in  that  it 
abridged  the  privileges  and  immunities  of  the  citizens  of  the 
United  States,  residing  in,  and  citizens  of,  Connecticut  and  New 
Jersey,  and  that  it  deprived  the  complainant's  employees  of  their 

426 


CONSTITUTIONALITY  OF   N.   Y.   PERSONAL,  INCOME  TAX  LAW       427 

• 

property  without  due  process  of  law  and  denied  to  them  equal 
protection  of  the  laws. 

The  court  denied  the  motion  of  the  State  Comptroller  to  dis- 
miss the  bill  of  complaint,  on  the  ground  that  the  personal  income 
tax  law,  insofar  as  it  attempted  to  assess  and  collect  a  tax  from 
citizens  of  the  United  States  who  were  not  citizens  of  the  State  of 
New  York  but  who  were  citizens  of  other  states,  without  accord- 
ing them  the  privileges  and  immunities  afforded  to  citizens  of  the 
State  of  New  York,  was  unconstitutional  and  void.  Judge  Knox 
did  not  consider  it  necessary:  to  pass  on  the  question  as  to  the 
power  of  the  State  of  New  York  to  lay  a  tax  upon  nonresidents, 
citizens  of  another  state,  based  on  their  earnings  in  New  York 
State  for  personal  service  rendered.  From  the  decision  rendered 
by  Judge  Knox,  the  State  Comptroller  appealed  to  the  United 
States  Supreme  Court,  and  the  case  has  now  been  argued  and  is 
pending  in  that  court.  A  decision  may  be  looked  for  some  time 
early  in  1920. 

Upon  the  argument,  a  brief  was  presented  on  behalf  of  the 
State  of  New  Jersey,  by  Hon.  John  W.  Griggs,  as  amiciis  curiae, 
and  there  also  appeared,  as  amicus  curiae,  Mr.  Laurence  Arnold 
Tanzer,  on  behalf  of  the  corporation  counsels  of  the  cities  of  New 
York,  Buffalo  and  Yonkers.  The  chief  points  presented  by  the 
Attorney-general,  on  behalf  of  the  State  Comptroller,  and  by 
Mr.  Tanzer,  as  amicus  curiae,  before  the  United  States  Supreme 
Court,  in  support  of  the  personal  income  tax,  were  briefly :  That 
the  income  tax  was  a  proper  subject  of  State  revenue  and  that 
whether  it  was  a  direct  or  indirect  tax,  whether  it  was  a  tax  on 
persons,  or  on  property,  or  on  privileges,  was  a  matter  of  no  im- 
portance. Whether  or  not  the  State  had  sovereign  power  to  enforce 
the  tax  depended  solely  on  its  ability  to  collect  it  without  extend- 
ing its  jurisdiction  beyond  its  territorial  boundaries.  This 
inherent  power  in  the  sovereign  extended  equally  to  residents  and 


428       CONSTITUTIONALITY  OF   N.   Y.   PERSONAL  INCOME  TAX  LAW 

• 

to  nonresidents.  The  New  York  income  tax  did  not  deny  to 
citizens  of  any  state  any  of  the  privileges  or  immunities  of  citizens 
of  the  several  states,  and  the  classification  of  residents  and  non- 
residents in  the  New  York  income  tax  act  was  reasonable ;  that  the 
difference  made  in  the  act  between  residents  and  nonresidents 
was  necessarily  due  to  the  limited  jurisdiction  of  the  State  over 
nonresidents ;  that  the  base  of  the  tax  being  different  and  narrower 
in  the  case  of  a  nonresident  since  he  is  taxed  only  upon  income 
from  sources  within  the  State,  the  exemption  was  different;  that 
the  statute  did  not,  in  fact,  discriminate  against  nonresidents  as 
a  class. 

The  appellee  contended  that  the  attempt  by  the  State  of  New 
York  to  tax  nonresidents  on  their  salaries  and  earnings,  was  an 
attempt  to  tax  persons  and  things  outside  of  the  jurisdiction  of 
the  State  and  within  the  jurisdiction  of  other  states;  that  indi- 
vidual "  net  income  "  was  personal  to  the  nonresident  and  was 
not  within  the  jurisdiction  of  the  State  other  than  that  of  which 
he  was  a  resident  and  citizen;  that  such  tax  had  been  imposed  as 
an  income  tax  and  not  as  a  privilege  or  license  tax,  and  the  State  of 
New  York  had  neither  the  jurisdiction  nor  power  to  collect  the 
tax. 

The  Taxation  of  Nonresidents  Under  Oklahoma's  Income  Tax  Act. 
-Practically  the  same  issue  raised  in  the  Yale  and  Towne  case 
was  presented  to  the  same  court  at  the  same  term  in  Shaffer  v. 
Carter,  in  which  the  question  of  the  right  of  the  State  of  Okla- 
homa to  tax  a  nonresident  upon  income  from  oil  wells  located  in 
the  State,  under  its  State  Income  Tax  Law,  was  an  issue. 

The  Carter  case  was  a  corollary  to  Shaffer  v.  Howard,  250 
Fed.  Rep.  874,  referred  to  in  chapter  24,  supra,  page  197,  the 
latter  case  having  been  dismissed  by  the  United  States  Supreme 
Court  by  reason  of  change  of  parties  since  the  commencement 
of  the  suit.  Oklahoma's  law,  so  far  as  it  imposed  a  tax  on  non- 
residents, is  substantially  like  New  York's,  the  chief  difference 


CONSTITUTIONALITY  OF  N.    Y.   PERSONAL  INCOME  TAX  LAW       429 

lying  in  the  facts,  the  income  in  the  New  York  case  arising 
from  salaries  for  personal  or  professional  service,  and  the  income 
in  the  Oklahoma  case  being  derived  from  profits  in  oil  wells 
located  in  that  State.  A  decision  by  the  Supreme  Court  of  the 
United  States  in  the  New  York  and  Oklahoma  cases  will  prob- 
ably clear  up  many  difficulties  affecting  the  taxation  of  non- 
residents. 

The  opinion  of  Judge  Knox  in  the  Yale  and  Towne  case  is  given 
below  in  full : 

Decision  of  District  Court  of  the  United  States,  Southern  District  of 
New  York. 

The  Yale  and  Towne  Manufacturing  Company,  Complainant,  vs.  Eugene 
M.  Travis,  Comptroller  of  the  State  of  New  York,  Defendant.  In  Equity. 

Upon  motion  to  dismiss  the  bill  upon  the  ground  that  it  does  not 
state  a  cause  entitling  the  complainant  to  the  relief  sought.  Motion 
denied.  Louis  H.  Porter  and  Archibald  Cox  (F.  Carroll  Taylor  with 
them  on  the  brief),  for  Complainant;  James  Y.  Ivins,  Deputy  Attorney- 
General  of  the  State  of  New  York,  for  Defendant.  (No  brief  was  sub- 
mitted upon  behalf  of  the  defendant). 

The  complainant,  a  Connecticut  corporation,  has  its  plant  and  principal 
business  place  at  Stamford,  Connecticut.  It  is  authorized  to  do  business 
in  this  State,  where  it  maintains  an  office,  owns  property  and  employs 
nvimerous  residents  of  other  States,  to  wit,  of  New  Jersey  and  Connecticut 
who  are  occupied  in  whole  or  in  part  in  the  complainant's  business  within 
this  State.  A  number  of  complainant's  employees,  who  are  non-residents 
of  New  York,  perform  substantially  all  of  their  services  at  the  New 
York  office,  and  their  salaries  are  paid  at  stipulated  times  in  the  City  of 
New  York  from  funds  of  the  complainant  within,  the  State.  Still  other 
employees  similarly  situated  have  their  salaries  paid  to  them  by  checks 
sent  by  mail  from  the  home  office  to  such  employees  in  New  York.  Still 
other  non-resident  employees  are  occupied  in  services  which  are  rendered 
partly  in  Connecticut  and  partly  in  New  York,  some  spending  relatively 
little  time  in  Connecticut  and  vice  versa,  the  amount  of  time  spent  in 
each  place  depending  upon  circumstances.  The  complainant  also  employs 
certain  non-residents  as  traveling  salesmen,  who  spend  their  time  in  New 
York  and  in  traveling  through  other  states. 

The  number  of  employees  occupied  as  above  set  forth,  whose  salaries 
are  in  excess  of  $1,000  per  annum,  exceed  fifty  in  number  and  their  total 
salaries  are  in  excess  of  $200,000. 


430       CONSTITUTIONALITY   OF   N.    Y.    PERSONAL   INCOME  TAX   LAW 

Upon  May  14,  1919,  what  is  known  as  "  Chapter  627  of  the  Laws  of 

1919  "  and  entitled  "An  Act  to  amend  the  tax  law,  in  relation  to  impos- 
ing taxes  upon  and  with  respect  to  incomes  "  became  a  law  of  this  State. 

•Section  351  of  the  Act  provides: — 

"A  tax  is  hereby  imposed  upon  every  resident  of  the  state,  which 
tax  shall  be  levied,  collected  and  paid  annually  upon  and  with  re- 
spect to  his  entire  net  income  as  herein  denned  at  rates  as  follows:" 
1%  on  amounts  not  exceeding  $10,000,  2%  upon  amounts  in  excess  of 
$10,000  and  not  in  excess  of  $50,000,  and  3%  on  amounts  in  excess  of 
$50,000. 

The  section  continues,  "A  like  tax  is  hereby  imposed  and  shall  be 
levied,  collected  and  paid  annually,  at  the  rates  specified  in  this 
section,  upon  and  with  respect  to  the  entire  net  income  as  herein  de- 
fined, except  as  hereinafter  provided,  from  all  property  owned  and 
from  every  business,  trade,  profession  or  occupation  carried  on  in 
this  state  by  natural  persons  not  residents  of  the  state."  The  tax 
shall  first  be  levied  and  paid  with  respect  to  the  calendar  year  1919. 

From  here  on  the  Act  proceeds  to  specify  its  provisions  in  much  detail. 
"  In  general,"  says  Mr.  Powell  in  his  very  recent  work,  Taxation  of  Cor- 
porations and  Personal  Income,  "  it  may  be  said  that  the  New  York  law 
has  copied  the  Federal  Income  Tax  Act,  substituting  '  taxpayer  other 
that  a  resident'  for  '  non-resident  alien'  and  'January  1,  1919'  for 
'  March  1,  1913.'  The  remedial  procedure  and  method  of  collection  in 
the  .New  York  Corporation  Tax  Law,  Arts.  9  and  9a,  are  substituted  for 
the  Federal  procedure."  *  *  * 

Non-residents  are  not  entitled  to  the  personal  exemption  provided  for 
residents,  to  wit,  $1,000  for  unmarried  persons,  and  $2,000  for  married 
persons  and  $200  for  each  dependent. 

Residents  are  likewise  entitled  to  certain  deductions  in  computing  net 
income,  but  non-residents  are  allowed  such  proportion  of  deduction  as  the 
income  arising  from  sources  within  the  State  bears  to  the  total  income. 
The  method  of  apportionment  and  allocation  of  claimed  deductions  is  to 
be  determined  by  the  State  Comptroller. 

The  Act  creates  "  withholding  agents,"  and  the  complainant  would  be 
one  under  the  definition  of  the  term,  and  such  agents  are  required  "  tc 
deduct  and  withhold  2%  from  all  salaries,  wages,  commissions,  annuities, 
emoluments,  and  other  fixed  and  determinable  annual  or  periodical  gains, 
profits  and  incomes  of  which  he  shall  have  control,  receipt,  custody,  dis- 
posal or  payment,  if  the  amount  paid  or  received  in  any  year  equals  01 
exceeds  $1,000,  unless  there  shall  be  filed  with  the  withholding  agent 
before  the  time  to  return  any  payment  a  certificate  ...  to  the  effect 


CONSTITUTIONALITY  OF  N.   Y.   PERSONAL  INCOME  TAX  LAW       431 

that  the  person  entitled  to  such  salary,"  etc.,  is  a  resident,  and  setting 
forth  his  residence  in  the  State. 

The  complainant  alleges  the  existence  between  it  and  its  employees  of 
term  contracts  and  is  so  positioned  generally  as  to  come  within  the  terms 
of  this  Act.  and  would,  it  says,  be  put  to  considerable  expense  in  with- 
holding a  percentage  of  the  salaries  of  its  employees.  The  defendant  as 
Comptroller  is  alleged  to  threaten  to  enforce  the  penalties  of  the  statute 
against  the  complainant  unless  it  complies  with  the  terms  of  the  statute. 
The  jurisdictional  allegations  of  the  bill  being  sufficient,  the  complainant 
asks  for  equitable  relief  against  the  threatened  action  of  the  Comptroller 
upon  the  grounds: 

(1)  That  the  statute  is  illegal  and  unconstitutional,  in  that  it  is  con- 
trary to  and  in  violation  of  article  I,  section  8,  of  the  Constitution  by 
interfering  with  and  directly  hindering  commerce; 

(2)  That    it    impairs    the   obligation    of   contracts    between   the    com- 
plainant and  its  employees; 

(3)  That  it  is  contrary  to  section  2  of  article  IV  of  the  Constitution, 
in  that  it  deprives  the  citizens  of  the  State  of  Connecticut  and  of  New 
Jersey  of  the  privileges  and  immunities  enjoyed  by  citizens  of  the  State 
of  New  York ; 

(4)  That   it   contravenes   the   Fourteenth  Amendment   of  the   Federal 
Constitution,  in  that  it  abridges  the  privileges  and  immunities  of  citizens 
of  the  United  States  residing  in,  and  citizens  of  Connecticut  and  New 
Jersey  and  States  other  than  Xew  York,  and  that  the  complainant  and 
its   employees    are   deprived   of    their    property   without    due   process   of 
law,  and  that  they  are  denied  the  equal  protection  of  the  laws. 

Knox,  D.  J. 

By  reason  of  the  decision  which  I  have  determined  should  be  made  in 
this  case,  it  will  be  unnecessary  to  enter  upon  a  discussion  of  the  enact- 
ment in  its  entirety.  That  a  State  possesses  practically  unlimited  powers 
of  taxation  within  the  realm  of  its  jurisdiction  save  as  circumscribed  by 
constitutional  limitations,  is  elementary,  and'  income  taxes  are  no 
exception. 

The  outstanding  question,  it  seems  to  me,  in  this  litigation  is  whether 
the  Act  as  drawn  transgresses  upon  the  equal  privilege  and  immunity 
provisions  of  the  Federal  Constitution.  If  it  does,  I  need  proceed  no 
further. 

So  far  as  decided  cases  upon  this  precise  question  go,  there  appear  to 
be  none. 

It  is  true  the  question  was  raised  in  the  Income  Tax  Cases  of  Wis- 
consin, 148  Wisconsin,  456,  wherein  Chief  Justice  Winslow  said: 


432   CONSTITUTIONAL,! TY  OF  N.  Y.  PERSONAL  INCOME  TAX  LAW 

"  It  is  argued  that  the  provisions  which  deny  to  non-residents  the 
exemptions  which  are  allowed  to  residents  .  .  .  violates  Section  2 
of  Article  IV  of  the  Federal  Constitution,  which  provides  that  '  the 
citizens  of  each  state  shall  be  entitled  to  all  privileges  and  immuni- 
ties of  citizens  in  the  several  states.'  .  .  .  We  regard  it  as  a 
question  involved  in  considerable  doubt,  and  one  not  necessary  to  be 
passed  upon  now." 

The  case  of  Shaffer  v.  Howard,  250  Federal,  873,  by  reason  of  its  facts, 
is  but  of  little  help  in  this  instance,  and  it  is  necessary  to  consider  more 
or  less  original  sources,  and  resort  is  had  to  the  case  of  Cor  field  v. 
Coryell,  4  Washington  Circuit  Court  Reports,  381. 

The  accuracy  of  the  language,  and  the  authority  of  this  case,  so  far  as 
I  know,  have  not  been  questioned,  and  Justice  Washington  there  said 
that  he  had  no  hesitation  in  confining  the  expression,  that  "  the  citizens 
of  each  state  shall  be  entitled  to  all  privileges  and  immunities  of  citizens 
in  the  several  States  "  to  those  privileges  and  immunities  which  were  in 
their  nature  fundamental,  which  belong  of  right  to  citizens  of  all  free 
governments  and  which  have  at  all  times  been  enjoyed  by  the  citizens  of 
the  several  States  which  compose  the  Union  from  the  time  of  their 
becoming  free,  independent  and  sovereign.  Among  these  fundamental 
rights,  said  Justice  Washington,  were  "  the  right  of  a  citizen  to  pass 
through  or  to  reside  in  any  other  state  for  the  purposes  of  trade,  agri- 
culture, professional  pursuits,  or  otherwise;  to  claim  the  benefit  of  the 
writ  of  habeas  corpus;  to  take,  hold  and  dispose  of  property,  either  real 
or  personal,  and  an  exemption  from  higher  taxes  or  impositions  than  are 
paid  by  the  other  citizens  of  the  state." 

Thereafter,  in  Paul  v.  Virginia,  8  Wall.  168,  at  page  180,  the  Supreme 
Court  said: 

"It  was  undoubtedly  the  object  of  the"  (Constitutional)  "clause 
in  question  to  place  the  citizens  of  each  state  upon  the  same  footing 
with  citizens  of  other  states,  so  far  as  the  advantages  resulting  from 
citizenship  in  those  states  are  concerned.  It  relieves  them  from  the 
disabilities  of  alienage  in  other  states;  it  inhibits  discriminating 
legislation  against  them  by  other  states;  it  gives  them  the  right  of 
free  ingress  into  other  states,  and  egress  from  them;  it  insures  them 
in  other  states  the  same  freedom  possessed  by  the  citizens  of  those 
states  in  the  acquisition  and  enjoyment  of  property  and  in  the  pur- 
suit of  happiness;  and  it  secures  to  them  in  other  states  the  equal 
protection  of  their  laws.  It  has  been  justly  said  that  no  provision  in 
the  Constitution  has1  tended  so  strongly  to  constitute  the  citizens  of 
the  United  States  one  people  as  this." 


CONSTITUTIONALITY  OF  X.  Y.  PERSONAL  INCOME  TAX  LAW   433 

Again,  in.  Ward  v.  Maryland,  12  Wall.  418,  the  court,  in  specifying 
some  of  the  rights  included!  within  the  words  "  privileges  and  immuni- 
ties," said  one  of  them  was  that  a  citizen  of  one  State  should  be  "  .  .  . 
exempt  from  any  higher  taxes  or  excises  than  are  imposed  by  the  state 
upon  its  own  citizens."  See  also,  Cooley,  Const.  Limitations,  16.  Sub- 
sequently in  the  Slaughter  House  Cases,  16  Wall.  36,  it  was  said  that  the 
purpose  of  the  Fourteenth  Amendment  "...  was  to  declare  to  the 
several  states,  that  whatever  those  rights,  as  you  grant  or  establish  them 
to  your  own  citizens  or  as  you  limit  or  qualify,  or  impose  restrictions  on 
their  exercise,  the  same,  neither  more  nor  less,  shall  be  the  measure  of 
the  rights  of  citizens  of  other  states  within  your  jurisdiction/'  Cer- 
tainly, the  force  of  this  pronouncement  was  not  qualified  by  the  vigor  of 
the  dissents  in  these  cases;  and  also  in  Barbier  v.  Connolly,  113  U.  S. 
27,  in  a  discussion  of  the  Fourteenth  Amendment  somewhat  similar 
language  was  used. 

Then  there  may  be  found  the  cases  of  Blake  v.  McClung,  176  U.  S.  59, 
followed  by  Sully  v.  American  National  Bank,  178  U.  S.  289,  wherein  it 
was  held  that  non-resident  unsecured  creditors  stood  upon  the  same  foot- 
ing with  resident  unsecured  creditors,  a  statute  of  Tennessee  to  the  con- 
trary notwithstanding. 

It  need  not  be  argued  that  the  rights  of  a  corporation  created  by  one 
State  within  the  borders  of  another  State  are  not  altogether  similar  to 
the  rights  of  a  natural  person  so  circumstanced.  Paul  v.  Virginia, 
supra;  but  even  so,  it  was  decided  in  Southern  Railway  v.  Greene,  216 
U.  S.  400,  that  to  tax  a  foreign  corporation  under  the  circumstances 
there  present  by  a  different  and  more  onerous  rule  than  was  used  in 
taxing  domestic  corporations  for  the  same  privilege,  constituted  a  denial 
of  the  equal  protection  of  the  law. 

In  Wiley  v.  Farmer,  14  Ala.  627,  it  was  held  that  the  statute  of  that 
State,  taxing  the  slaves  of  a  non-resident  at  double  the  amount  at  which 
those  of  a  resident  were  taxed,  was  unconstitutional. 

In  Bliss's  Petition,  63  N.  H.  135,  it  was  held  that  a  State  cannot  refuse 
a  pedler's  license  to  a  citizen  of  another  State,  asked  for  upon  the  same 
terms  that  it  grants  licenses  to  its  own  citizens.  Among  other  things 
the  court  said: 

"The   equality   of   privileges   and   immunities    guaranteed   by  the 
federal  constitution  to  the  citizens  of  each  state  exempts  them  from 
any  higher  taxes  than  the  state  imposes  upon  her  own  citizens." 
Other  cases  to  the  same  general  effect  are,  State  v.  Lancaster,  63  N.  H. 
267;   McGuire  v.  Parker,  32  La.  Ann.  832;   Oliver  v.  Washington  Mills, 
]1  Allen,  280;  Town  of  Farmington  v.  Downing,  30  Atl.  Rep.  345. 


434       CONSTITUTIONALITY  OF   N.   Y.   PERSONAL  INCOME  TAX  LAW 

In  Sprague  v.  Fletcher,  69  Vt.  69,  it  was  declared  that  an  act  of 
Vermont  which  denies  to  non-residents  of  the  State  rights  which  are 
allowed  to  residents  under  the  same  circumstances,  in  respect  to  deduc- 
tions from  taxable  personal  property  by  reason  of  debts  owed  by  the  tax- 
payers, conflicts  with  article  IV,  section  2,  of  the  Federal  Constitution, 
which  secures  to  citizens  of  each  State  "  all  the  privileges  and  immunities 
in  the  several  states." 

Tested  by  the  standard  of  the  principles  set  forth  in  the  foregoing 
cases,  does  the  failure  to  accord  to  non-residents  of  the  State  the  exemp- 
tions and  immunities  provided  for  to  residents  make  this  law,  or  part  of 
it,  invalid? 

It  becomes  necessary  to  determine  what  persons  are  meant  by  the  term 
"  non-residents.''  The  Comptroller  of  the  State  has  used  this  language  in 
referring  to  the  term :  "A  person  is  a  non-resident  within  the  meaning 
of  the  act,  if  he  receives  taxable  income  from  property  owned  or  from  a 
business,  trade,  profession  or  occupation  carried  on  in  the  state,  but  is 
not  a  resident  thereof."  What  I  have  to  say  will  be  confined  to  such  non- 
residents who  are  citizens  of  States  other  than  New  York. 

The  question  is  of  importance  to  the  State  of  New  York  and  is  likewise 
of  importance  to  the  thousands  of  persons,  residents  and  citizens  of 
adjoining  States,  who  daily  come  into  this  State  and  here  contribute  to 
its  welfare  and  prosperity. 

It  may  be  well  to  inquire  what  is  the  nature  of  the  discrimination 
which  it  is  alleged  non-residents  will  be  subjected  to  under  the  operation 
of  the  law.  The  following  illustration  will  serve  to  answer  the  inquiry: 

Two  persons  are  employed1  in  this  State  by  the  plaintiff.  Their  work 
is  in  all  respects  similar,  and  each  receives  a  salary  of  $2,000  per  annum. 
Assume  that  each  employee  is  married,  one  living  with  his  wife  in  New 
York,  and  the  other  living  with  his  wife  in  Connecticut.  Under  the  law  as 
it  is  written  the  resident  of  New  York  would  be  exe'mpt  from  taxation, 
but  the  resident  of  Connecticut  would  be  subject  to  a  tax  of  $20. 

Section  366  provides  that  "  every  withholding  agent  shall  deduct  and 
withhold  two  per  centum  from  all  salaries,"  etc..  of  non-residents.  The 
tax  imposed  by  section  351  is  at  the  rate  of  one  per  cent  on  net  incomes 
up  to  $10,000;  this  is  obviously  an  error  in  the  Act,  and  under  the  regu- 
lations withholding  agents  are  required  to  withhold  but  one  per  cent. 
Without  commenting  upon  the  authority  of  the  regulation  so  imposed, 
this  discrepancy  may  be  passed.  The  withholding  of  any  sum  from  the 
salaries  of  non-residents  is  objected  to,  inasmuch  as  there  is  no  with- 
holding from  residents.  Assuming  the  power  to  lay  a  tax  upon  non- 
residents based  upon  personal  service,  this  feature  of  the  Act  I  am 
inclined  to  think  is  not  necessarily  fatal  to  its  validity.  It  is  the  law, 


CONSTITUTIONALITY  OF  N.   Y.   PERSONAL  INCOME  TAX  LAW       435 

I  think,  that  not  only  must  the  final  purpose  of  the  law  be  considered, 
but  the  means  of  its  administration  —  the  ways  it  may  be  defeated.  St. 
John  v.  New  York,  201  U.  S.  633.  As  to  this  feature  of  administration 
—  I  believe  that  some  classification  between  residents  and  non-residents 
ir\ay  with  propriety  be  made.  District  of  Columbia  v.  Brooks,  214  U.  S. 
138;  Field  v.  Barber  Asphalt  Co.,  194  U.  S.  618.  Reference  may  also  be 
had  to  Bell's  Gap  Railroad  Co.  v.  Pennsylvania,  134  U.  S.  232,  wherein 
the  court  held  that  the  deduction  of  a  tax  by  a  withholding  agent  is 
merely  a  matter  of  convenience  adopted  as  a  secure  method  of  collecting 
the  tax,  and  as  such  is  not  objectionable. 

As  to  the  inconvenience  resulting  to  the  non-resident  by  reason  of  the 
payment  by  the  withholding  agent  of  the  gross  amount  so  withheld,  and 
the  trouble  and  expense  of  the  taxpayer  in  recovering  any  excess  over  the 
tax  finally  determined  upon,  I  need  not  now  comment. 

Paragraph  5  of  section  360  provides  that  a  resident  may  deduct  losses 
incurred  in  any  transaction  entered  into  for  profit,  though  not  connected 
with  the  trade  or  business,  "  but  in  the  case  of  a  taxpayer  other  than  a 
resident  of  the  state  only  as  to  such  transaction  within  the  state."  The 
result  of  this  is  that  two  employees  of  complainant,  each  receiving  a 
salary  of  $5,000  a  year,  may  together  enter  into  a  business  venture  in 
another  State;  if  the  venture  within  a  year  results  in  a  loss  of  say 
$5.000  to  each,  the  resident  of  New  York  may  deduct  his  loss  and  pay  no 
tax,  but  the  non-resident  of  New  York  is  subject  to  the  tax.  Also  under 
paragraph  6  a  resident  may  deduct  his  losses  from  fires,  but  unless  the 
property  of  a  non-resident  injured  by  fire  is  within  this  State  he  can 
make  no  deduction. 

Theoretically,  the  first  of  the  two  last-mentioned  discriminations  may 
be  justifiable  upon  the  ground  that  as  to  a  resident  of  New  York  the 
State  is  entitled  to  tax  upon  his  gains  and  profits  from  sources  without 
the  State,  whereas  as  to  a  non-resident  the  tax  may  be  recovered  only  as 
to  net  income  from  property,  businesses  and  occupations  within,  the  State 
of  New  York.  The  fact,  however,  remains  that  it  is  the  personal  knowl- 
edge of  us  all  that  the  only  appreciable  source  of  income  of  thousands  of 
non-residents  subject  to  this  tax  lies  within  the  confines  of  this  State, 
and  that  as  a  matter  of  practical  operation  of  the  statute  the  effect  will 
be  simply  to  deny  to  a  non-resident,  no  matter  what  his  misfortune,  any 
exemptions.  That  there  are  in  these  provisions  of  the  law  a  number  of 
problems  as  to  the  character  and  place  of  income  sought  to  be  taxed  well 
worthy  of  serious  consideration,  is  undeniable;  but  in  the  aggregate,  I 
am  of  opinion  that  as  now  framed  the  statute  cannot  operate  without 
depriving  citizens  of  other  States  of  privileges  and  immunities  which  are 
open  to  citizens  and  residents  of  New  York. 


436       CONSTITUTIONALITY   OF  N.   Y.   PERSONAL  INCOME  TAX  LAW 

The  difficulty  here  has  arisen,  it  would  appear,  by  the  Legislature  hav- 
ing assumed  that  a  citizen  of  the  United  States  residing  in  a  State  other 
than  .New  York  sustains  to  the  taxing  power  of  that  State  the  same 
relationship  that  a  non-resident  alien  sustains  to  the  Federal  taxing 
power.  There  is,  however,  a  distinction.  Generally  speaking,  the  United 
States  government,  as  suggested  by  Mr.  Powell  in  his  book  "  Taxation  of 
Corporations  and  Personal  Incomes,"  may  prescribe  terms  under  which 
aliens  may  do  business  here  or  prevent  them  from  doing  business  here 
altogether.  By  the  Fourteenth  Amendment  it  is  declared  that  "All  per- 
sons born  or  naturalized  in  the  United  States,  and  subject  to  the  juris- 
diction thereof,  are  citizens  of  the  United  States  and  of  the  state  wherein 
they  reside  "  and  "  No  state  shall  make  or  enforce  any  law  which  shall 
abridge  the  privileges  or  immunities  of  citizens  of  the  United  States." 

It  is  this  provision  of  the  Constitution  along  with  the  second  section 
of  Article  IV  and  the  Interstate  Commerce  section  of  our  fundamental 
law  that  have  been  largely  responsible  for  the  community  of  interest,  the 
unanimity  of  purpose,  the  united  effort,  and  the  magnificent  accom- 
plishments of  our  people.  If  now,  under  one  pretence  or  another,  the 
States  are  to  erect  economic  and  taxation  barriers  along  their  boundaries, 
it  is  but  a  question  of  time  when  the  citizens  of  the  various  States  will 
for  all  practical  purposes  be  burdened  with  the  disabilities  of  alienage, 
and  this  would  be  intolerable. 

For  these  reasons,  I  am  constrained  to  hold  that  the  provisions  of 
chapter  627  of  the  Laws  of  the  State  of  New  York  for  the  year  1919  are, 
in  so  far  as  they  attempt  to  assess,  lay  and  collect  a  tax  upon  citizens  of 
the  United  States  who  are  not  residents  of  the  State  of  New  York,  and 
who  are  citizens  of  other  States,  without  according  them  the  privileges 
and  immunities  afforded  by  said  Act  to  citizens  of  the  United  States  who 
are  citizens  of  the  State  of  New  York  and  resident  therein,  are  uncon- 
stitutional and  void.  Nothing  herein,  however,  is  meant  to  be  decided  as 
to  the  validity  of  the  statute  so  far  as  it  relates  to  residents  of  the  State 
of  New  York. 

Neither  that  question  nor  the  question  as  to  the  power  of  the  State  to 
lay  a  tax  upon  non-resident  citizens  of  another  State  based  upon  their 
earnings  in  this  State  for  personal  service  rendered,  need,  in  view  of  the 
basis  of  my  decision,  now  be  considered. 

The  motion  will  be  denied. 

JNO.   C.   KNOX, 

U.  S.  District  Judge. 

August  6,  1919. 

Filed  August  6,  1919. 


CHAPTER  XXXV. 

THK   STATE  COMPTROLLER'S  REGULATIONS. 

The  following  comments  on  the  State  Comptrollers  regulations 
only  treat  the  salient  points.  In  the  main,  these  regulations 
closely  follow  the  Federal  rulings,  and  it  is  only  where  they  are 
entirely  novel  or  diverge  in  imj>ortaiit  particulars  from  the 
Treasury  Department  regulations  that  they  are  discussed  in  detail. 

Bad  Debts  Charged  Off  and  Not  Deducted (Art.  44.)     "  Bad 

debts  or  accounts  charged  off  because  of  the  fact  that  they  were 
determined  to  be  worthless,  which  are  subsequently  recovered, 
whether  or  not  by  suit,  constitute  income  for  the  year  in 
which  recovered,  regardless  of  the  date  when  the  amounts  were 
charged  off." 

This  ruling  does  not  refer  to  debts  which  have  been  charged 
oft'  but  not  deducted  in.  returns  of  income.  What  the  article 
means  is,  that  if  a  bad  debt  has  been  charged  off  and  deducted 
in  a  State  income  tax  return,  as  a  loss,  any  part  thereof  subse- 
quently recovered  must  be  returned  as  income  for  the  year  of 
recovery.  Debts  due  to  the  taxpayer,  therefore,  whether  of 
principal  or  of  income,  if  written  off  subsequent  to  January  1, 
1919,  and  deducted  as  losses  in  State  income  tax  returns,  must, 
if  subsequently  recovered,  be  returned  as  income  for  the  year 
of  recovery;  but  if  written  off  prior  to  January  1,  1919,  the 
retroactive  date  of  the  State  Personal  Income  Tax  Law,  such 
debts  could  not  be  deducted  in  any  return,  and  herrce  no  part 
thereof  subsequently  recovered  should  be  returned  as  income. 

As  to  when  debts  of  income  are  deductible,  because  uncol- 
lectible. HOC  Art.  !(>:>,  and  comments. 

437 


438  THE    STATE    COMPTROLLER'S    REGULATIONS 

Interest  Accrued  Prior  to  January  1,  1919. —  (Art.  -16.)  "  Where 
interest  coupons  have  matured,  but  have  not  been  cashed,  such 
interest,  though  not  collected  when  due  and  payable,  is  never- 
theless available  to  the  taxpayer  and  should  therefore  be  included 
in  his  gross  income  for  the  year  during  which  the  coupons 
matured  unless  the  debtor  he  in  default  *.  Interest 

accrued  on  savings  bank  deposits  is  income  to  the 

depositor  when  credited.-' 

The  foregoing  provisions  do  not  refer  to  interest  which 
accrued  prior  to  January  1,  1919,  whether  due  and  payable  on 
that  date  or  not.  Such  interest  is  exempt  from  tax.  (vSee 
Art.  79;  also  Art.  61.) 

Difference  in  Taxing  Dividends  Between  State  and  Federal  Law 

(Art.  61.)  Under  the  State  law,  income  accruing  to  the  tax- 
payer prior  to  January  1,  1919,  and  under  the  .Federal  law, 
income  accruing  prior  to  March  1,  1913,  is  exempt  from  income 
taxation.  There  is  an  important  difference,  however,  between 
the  taxation  of  dividends  under  the  Federal  law,  with  reference 
to  March  1,  1913,  and  the  taxation  of  dividends  under  the  State 
law,  with  reference  to  January  1,  1919. 

The  Federal  law,  decisions  and  regulations  make  the  exemption 
of  dividends  dependent  upon  the  year  in  which  the  profits  dis- 
tributed were  earned,  earnings  accumulated  prior  to  March  1, 
1913,  being  tax-free,  while  earnings  accumulated  subsequent  to 
that  date  are  taxable  as  dividends.  Accordingly,  the  Federal 
law  provides  that  distributions  of  corporate  dividends  are  deemed 
to  be  made  from  earnings  accumulated  subsequent  to  March  1, 
1913;  and  the  Commissioner  of  Internal  Revenue  has  ruled 
(with  doubtful  propriety)  that  losses  by  casualty  must  be  rharuvd 
first  against  earnings  accumulated  prior  to  March  1,  1913. 

Under  the  State  law  and  regulations,   the  exemption  of  divi- 


THE  STATE  COMPTROLLER'S  REGULATIONS         439 

(lends  is  dependent  upon  the  date  of  declaration  of  the  dividend, 
with  reference  to  January  1,  1919,  regardless  of  when  the  divi- 
dend was  earned  by  the  distributing  company  and  regardless  of 
the  date  of  actual  payment  thereof.  If  the  dividend  was  declared 
prior  to  January  1,  1919,  it  is  exempt;  otherwise  it  is  taxable. 
There  is  therefore  no  provision  of  the  State  law,  nor  any  regula- 
tion of  the  Comptroller,  which  raises  any  presumption  as  to  the 
earnings  from  which  distributions  of  dividends  shall  be  deemed 
to  be  made,  with  reference  to  January  1,  1919.  As  regards  the 
presumption  that  all  distributions  are  made  from  earned  surplus 
and  undivided  profits,  however,  see  article  66. 

Constitutionality  of  Tax  on  Income  from  Mortgages (Art.  74.) 

"However,  the  income  from  securities  (1)  upon  which  the  invest- 
ment tax  was  paid  after  May  14,  1919,  or  (2)  upon  which  the 
secured  debt  or  the  mortgage  tax  was  paid,  is  not  exempt/'7 

Section  251,  article  11,  of  the  Tax  Law,  exempts  from  all 
other  taxation  by  the  State,  counties,  cities,  towns,  villages,  school 
districts  and  other  local  subdivisions  of  the  State,  all  mortgages 
of  real  property  situated  within  the  State  upon  which  the  mort- 
gage tax  imjxxspd  by  that  article  has  been  paid. 

As  indicated  by  the  above  quotation  from  article  74,  the  Per- 
sonal Income  Tax  Law  does  not  exempt  the  interest  on  such 
mortgages  lYom  income  taxation.  This  is  not,  however,  an  im- 
pairment of  any  contract  between  the  State  and  the  taxpayer 
(I'roplp  v.  Diamond,  121  A.  D.  559),  nor  is  a  tax  upon  the 
income  from  a  mortgage  a  tax  upon  the  mortgage.  Section  359, 
subdivision  (d),  expressly  excludes  the  income  from  investments 
upon  which  the  tax  has  been  paid  since  June  1,  1917,  as  pro- 
vided in  section  331.  article  XV  of  the  Tax  Law,  known  as  the 
Investment  Tax,  but  only  during  the  period  for  which  such  tax 
has  been  paid. 


440  THE  STATE  COMPTROLLER'S  REGULATIONS 

Inventory  Valuations, —  (Art.  91.)  For  the  purpose  of  com- 
puting gain  or  loss  from  the  sale  of  inventory  property  acquired 
prior  to  January  1,  1019,  the  law  and  regulations  provide  that  the 
taxpayer  may  use  any  one  of  the  three  following  bases:  (1)  The 
fair  market  value  of  the  property  as  of  January  1,  1019;  or 
(2)  the  cost;  or  (8)  the  cost  or  market  value  of  each  item,  which- 
ever  is  lower. 

Provisions  of  the  Statute — Section  353  of  the  law  reads  as 
follows :  "  For  the  purpose  of  ascertaining  the  gain  derived  or 
loss  sustained  from  the  sale  or  other  disposition  of  property,  real, 
personal  or  mixed,  the  basis  shall  be  first,  in  the  case  of  property 
acquired  before  January  first,  nineteen  hundred  and  nineteen, 
the  fair  market  price  or  value  of  such  property,  as  of  January 
first,  nineteen  hundred  and  nineteen,  and  second,  in  case  of  prop- 
erty acquired  on  or  after  that  date,  the  cost  thereof;  or  the 
inventory  value,  if  the  inventory  is  made  in  accordance  with  this 
article  (the  Personal  Income  Tax  Law)." 

The  provision  of  the  article  which  relates  to  inventories  is 
embodied  in  section  356.  It  reads  in  part  as  follows:  "When- 
ever in  the  opinion  of  the  comptroller  the  use  of  inventories  is 
necessary  in  order  clearly  to  determine  the  income  of  any  tax- 
payer, inventories  shall  be  taken  by  such  taxpayer  upon  such 
basis  as  the  comptroller  may  prescribe,  conforming  as  nearly  ns 
may  be  *  *  *  to  the  forms  and  methods  prescribed  by  the 
United  States  commissioner  of  internal  revenue  under  the  act 
of  congress  known  as  the  revenue  act  of  nineteen  hundred  and 
eighteen." 

Regulations  of  Comptroller —  In  pursuance  of  the  authority  con- 
ferred by  section  356,  the  valuation  of  inventories  is  prescribed 
by  articles  91  and  217  of  the  Comptroller's  regulations. 


THE  STATE  COMPTROLLER  S  REGULATIONS 


441 


Taxpayer's  Option  as  to  Inventory  Valuations. —  Article  217  pro- 
vides: "  Inventories  should  be  valued  at  (a)  cost,  or  (b)  cost 
or  market  whichever  is  lower." 

Article  01  states:  "For  the  purpose  of  ascertaining  the  gai'i 
or  loss  from  the  sale,  gift,  exchange  or  other  disposition  of  prop- 
erty, tho  basis  is  (a)  its  fair  market  price  or  value  as  of  Jami- 
ury  1,  1910,  if  acquired  prior  thereto,  or  (b)  if  acquired  on  or 
after  that  date,  its  cost  or  its  approved  inventory  value/'  This 
language  clearly  indicates  that  the  inventory  valuations  prescribed 
in  article  217  are  required  to  be  used  only  in  the  case  of  prop- 
erty acquired  subsequent  to  January  1,  1910.  Moreover,  the 
last  clause  of  section  353  —  "or  the  inventory  value  if  the  in- 
ventory is  made  in  accordance  with  this  article"  —applies  to  all 
property  of  the  taxpayer  which  may  be  properly  included  in  his 
inventory,  whether  acquired  prior  or  subsequent  to  January  1 , 


1919. 


The  use  of  the  word  "or"  in  this  clause  indicates  that 


an  option  is  given  the  taxpayer  to  use  the  "inventory  values,"  as 
defined  in  article  217,  or  to  disregard  such  inventor}'  values 
altogether,  in  the  case  of  property  acquired  prior  to  January  1, 
1919,  substituting  therefor  the  fair  market  value  of  the  property 
as  of  that  date. 

Illustration. —  Basis  for  determining  gain  or  loss  from  the  sale 
of  property,  real,  personal  or  mixed. 


PROPERTY  ACQUIRED  PRIOR  TO 
JANUARY  1,  1919 

PROPERTY  ACQUIRED  SUBSEQUENT  TO 
JANUARY  1,  1919 

Included  in 
Inventory 

Not  Included 
in  Inventory 

Included  in 
Inventory 

Not  Included 
in  Inventory 

(1)  Fair  value  as  of  Jan- 
uary 1,  1919,  or 
(2)  Inventory          value, 
which  must  be  — 
(a)  cost;  or 
(b)  cost      or      market, 
whichever           is 
lower 

Fair  market  value  as  of 
January  1,  1919  (less 
depreciation,  deple- 
tion, or  obsolescence 
subsequent  to  that 
date)! 

(a)  Cost;  or 
(b)  Cost   or   market, 
whichever         is 
lower 

Cost  (less  deprecia- 
tion, depletion,  or 
obsolescence  sub- 
sequent to  acquisi- 
tion) 

442  THE    STATE    COMPTROLLER'S    REGULATIONS 

Inasmuch  as  the  Federal  law  prescribing  inventory  valuations 
was  retroactive  only  to  January  1,  1918,  practically  all  merchan- 
dise which  was  included  in  the  taxpayer's  inventory  for  the  first 
year  of  its  operation  had  heen  acquired  subsequent  to  March  1, 
1913,  so  that  it  was  impossible  for  taxpayers  to  use  the  fair  value 
thereof  as  of  March  1,  1913.  Under  the  State  law,  however, 
the  situation  is  different,  since  all  merchandise  on  hand  as  of 
January  1,  1919,  must  have  been  acquired  prior  to  that  date. 
Such  property  may  be  valued,  for  the  purpose  of  computing  gain 
or  loss  from  the  sale  thereof,  according  to  either  of  the  methods 
specified  in  the  first  column  of  the  above  table,  that  is,  (1)  fair 
market  value  as  of  January  1,  1919,  or  (2)  the  inventory  value, 
which  must  be  (a)  cost,  or  (b)  cost  or  market,  whichever  is  lower. 

Gift,  as  Closed  Transaction  Resulting  in  Taxable  Profit —  The 
Comptroller  has  ruled  in  article  91  that  gifts  constitute  a  dis- 
position of  property  which  may  result  in  a  profit  or  loss  to  the 
donor,  measured  by  the  difference  between  the  cost  of  the  prop- 
erty (or  its  value  as  of  January  1,  1919,  if  acquired  prior  thereto) 
and  its  value  at  the  date  of  the  gift.  It  is  believed  that  this  ruling 
is  intended  to  check  the  practice  which  has  no  doubt  been  hereto- 
fore indulged  in,  of  donating  property  for  the  purpose  of  avoid- 
ing a  Federal  income  tax  upon  the  profits  which  would  be  realized 
by  the  donor  if  he  personally  sold  the  property  at  the  market 
price.  Under  this  practice,  if  the  owner  makes  a  gift  of  the 
property,  and  it  is  immediately  sold  by  the  donee,  the  taxable 
profit  is  measured  by  the  difference  between  the  value  of  the 
property  at  the  date  of  the  gift  and  its  value  at  the  date  of  sale, 
which  would  be  practically  zero.  Whatever  may  be  the  reason 
for  the  Comptroller's  ruling,  it  will  be  difficult  to  spell  out  of  the 
law  any  authority  upon  which  to  support  it. 


THE  STATE  COMPTROLLER^  REGULATIONS         443 

Fair  Market  Value  January  1,  1919 (Art.  92.)      The  phrase 

"  bona  fide  sales  nearest  January  1,  1919,"  would  no  doubt  in- 
clude sales  immediately  following,  as  well  as  immediately  pre- 
ceding, January  1,  1919,  at  least  in  cases  where  there  were  no 
sales  immediately  preceding  that  date. 

Exchange  of  Property  for  Stock,  Treasury  Ruling. —  (Art.  97.) 
The  original  corresponding  article  of  the  Federal  regulation.  (Art. 
1566)  read  in  part  as  follows:  a(a)  Where  property  is  trans- 
ferred to  a  corporation  in  exchange  for  its  stock,  if  the  previous 
owner  of  the  property  receives  50  per  cent  or  more  of  the  stock 
of  the  corporation,  so  that  an  interest  of  50  per  cent  or  more  in 
such  property  remains  in  him,  then  no  gain  or  loss  is  realized  by 
such  owner  from  the  transaction."  This  article  was  amended  by 
T.  1).  2924,  dated  September  26,  1919,  by  striking  out  the  pro- 
vision quoted  above,  so  that  the  language  of  article  1566  is  now 
identical  with  that  of  article  97  of  the  Comptroller's  regulations. 

Exchange  of  Stock  for  Stock  of  Greater  Aggregate  Par  Value — 
(Art.  100.) 

Stock  Dividends  and  Reorganization  "Profits."  —  Under  both  the 
State  and  Federal  law,  a  tax  is  imposed  in  specific  language  upon 
stock  dividends  and  reorganization  profits.  The  practical  result 
in  both  cases  is  a  tax  upon  shareholders  measured  by  undistributed 
corporate  earnings  or  appreciation  values.  In  both  cases  the  share- 
holder finds  himself  possessed  of  stock  of  "  greater  aggregate  par 
value;'7  the  only  difference  between  the  two  cases  is,  that  the 
recipient  of  a  stock  dividend  receives  new  stock  from  the  same 
company  which  issued  his  old  stock,  whereas  the  recipient  of 
reorganization  "  profits "  receives  new  stock  from  a  new  com- 
pany which  has  no  assets  of  its  own,  other  than  the  stock  of  the 
old  company  which  the  shareholder  gives  in  exchange.  In  both 
cases  alike,  as  a  general  rule,  the  corporate  assets  are  not  increased, 
nor  are  the  proportions  of  stock  holdings  changed;  no  gain  has 


444 

been  derived,  nor  any  loss  sustained,  by  either  the  stockholders  or 
the  old  corporation.  In  neither  case  does  it  make  any  difference 
that  the  good  will  of  the  old  company  may  have  been  capitalized 
by  the  issuance  of  new  stock;  the  mere  issuance  of  such  stock 
does  not  create  any  good  will  which  did  not  exist  prior  thereto, 
or  which  was  not  represented  by  the  old  stock  previously  out- 
standing. 

If  Stock  Dividends  not  Taxable,  Tax  on  Reorganization  "  Profits  " 
Must  Fail. —  The  Supreme  Court  of  the  United  States  has  already 
decided  that  stock  dividends  are  not  income  in  the  sense  of 
"gains"  or  "profits."  (Towne  v.  Eisner,  245  U.  S.  418.)  It 
now  remains  for  that  court  to  determine  whether  such  dividends 
are  income  within  the  Sixteenth  Amendment  to  the  Constitution 
permitting  Congress  to  lay  "  income  taxes  "  without  apportion- 
ment according  to  population.  Unless  the  court  is  prepared  to 
reverse  its  former  decision,  the  answer  will  no  doubt  be  that  such 
dividends  are  not  within  the  terms  of  the  amendment.  In  the 
event  of  the  failure  of  the  provision  of  the  Federal  law  taxing 
stock  dividends,  the  tax  on  reorganization  "  profits  "  must  also 
fail,  not  only  upon  principle,  but  also  because  of  the  facility  with 
which  corporations  may  increase  the  par  value  of  their  share- 
holders' stock  by  the  payment  of  stock  dividends,  capitalizing 
profits  and  good  will,  prior  to  a  reorganization. 

As  regards  the  State  law,  in  the  absence  of  any  constitutional 
restriction,  the  intent  of  the  Legislature  concerning  the  nature  of 
the  tax,  must  govern.  The  tax  was  clearly  intended  to  be  an 
income  tax,  not  a  property  tax.  Returns  are  to  be  made  only  of 
"  gains,  profits  and  income."  If  stock  dividends  are  not  income, 
in  the  sense  of  "  gains  "  or  "  profits,"  then  there  is  no  provision 
of  law  requiring  a  return  thereof.  And  it  is  the  function  of  the 
courts  to  determine  whether  such  dividends  are  or  are  not  income 
in  that  sense. 


THE  STATE  COMPTROLLER'S  REGULATIONS          445 

If  the  State  courts  should  decide  that  stock  dividends  are  not 
income  in  the  sense  of  gains  or  profits,  then  the  provision  of  the 
State  law  taxing  reorganization  profits  must  also  fail,  for  the 
reasons  mentioned  above  in  reference  to  the  corresponding  pro- 
visions of  the  Federal  law. 

Deduction  of  Federal  Taxes — (Art.  142.)  Income  taxes  imposed 
by  any  authority  whatever  cannot  be  deducted  from  gross  income ; 
nor  can  Federal  business,  license,  privilege,  excise  or  stamp  taxes, 
which  are  deducted  as  part  of  the  cost  of  merchandise,  be  also 
deducted  as  taxes  paid  or  accrued.  But  the  mere  inclusion  of 
such  taxes  in  the  price  for  which  the  merchandise  is  sold  will 
not  render  payments  or  accruals  thereof  nondeductible  as  taxes, 
so  long  as  they  are  not  actually  deducted  as  a  part  of  the  cost  of 
goods  sold. 

When  Bad  Debts  Deductible. — (Art.  162.)  This  article  does 
not  apply  to  debts  of  the  character  specified  which  accrued  prior 
to  January  1,  1919,  whether  due  and  payable  on  that  date  or  not. 
Such  debts  are  deductible  for  the  year  in  which  charged  off,  not- 
withstanding they  were  not  required  to  be  returned  as  income  for 
the  year  of  accrual.  (See  Art.  79.) 

Personal  Exemption  of  Residents —  (Art.  209.)  Under  the 
Federal  regulations  the  status  of  individuals  for  purposes  of  the 
personal  exemption  of  $1,000  or  $2,000,  is  determined  as  of  the 
last  day  of  the  taxable  year.  Under  the  regulations  of  the  Comp- 
troller, however,  the  taxpayer  is  entitled  to  an  exemption  of  $2,000 
as  the  head  of  a  family,  or  as  a  married  person,  if  at  any  time 
during  iJie  taxable  year  he  or  she  was  the  head  of  a  family  or  a 
married  person  living  with  husband  or  wife,  with  an  exception 
in  case,  of  the  death  of  husband  or  wife.  If  either  spouse  dies 
during  the  taxable  year,  the  decedent's  personal  representative  is 
entitled  to  claim  for  him  or  her  the  undiminished  married  per- 


446 

son's  exemption,  and  the  survivor,  if  he  or  she  remarries  prior 
to  the  end  of  the  taxable  year,  is  likewise  entitled  to  an  un- 
diminished  exemption  of  $2,000 ;  but  if  the  survivor  does  not 
remarry  prior  to  the  end  of  the  taxable  year,  he  or  she  is  entitled 
to  an  undiminished  single  person's  exemption  of  $1,000.  In  fact, 
in  all  cases  the  personal  exemption  may  be  taken  in  full,  if  at  all, 
except  in  the  case  of  employees  of  the  United  States  (Art.  210), 
and  except  that  husband,  and  wife  are  entitled  to  only  one  exemp- 
tion of  $2,000  between  them.  As  to  whether  any  apportionment 
is  required  in  the  case  of  a  taxpayer  becoming  a  nonresident 
during  the  taxable  year,  see  page  455,  article  501,  and  comments. 

Apportionment  of  Personal  Exemption  between  Husband  and  Wife. 
Where  neither  husband  nor  wife  has  an  income  in  excess  of 
$10,000,  the  personal  exemption  may  be  apportioned  between  them 
in  any  way  they  see  fit;  but  if  one  has  an  income  in  excess  of 
$10,000  and  the  other  has  not,  it  will  be  advantageous  to  appor- 
tion the  entire  exemption  to  the  one  having  the  larger  income,  since 
the  rate  of  tax  on  income  in  excess  of  $10,000  and  not  in  excess 
of  $50,000  is  2  per  cent,  as  compared  with  1  per  cent  where  the 
income  does  not  exceed  $10,000. 

Withdrawals  of  Partnership  Earnings (Art.  232.)  Amounts 

"  withdrawn  "  by  partners  during  the  taxable  year,  are  not  taxable 
apart  from  and  in  addition  to  their  shares  in  the  partnership 
earnings  for  the  taxable  year  whether  distributed  or  not.  The 
reason  for  this  is,  of  course,  that  the  earnings  of  all  years  prior 
to  the  taxable  year  are  presumably  ta-x-paid,  or  constitute  income 
accruing  to  the  partnership  prior  to  January  1,  1919,  which  is 
exempt  from  tax.  (See  Art.  79.) 

Income  from  Estates  and  Trusts. —  (Art.  242.) 

Only  One  Tax  Payable —  The  law  imposes  only  one  tax  upon 
the  income  of  an  estate  or  trust ;  and  although  such  income  may 
be  taxable  either  to  the  fiduciary  or  to  the  beneficiary,  depending 


THE    STATE    COMPTROLLER'S    REGULATIONS  447 

upon  the  conditions  referred  to  in  article  242,  in  no  case  is  it 
taxable  to  both.  If  such  income  is  tax-paid  by  the  fiduciary,  it 
becomes,  in  effect,  capital,  and  is  not  again  subject  to  tax  when 
distributed  to  beneficiaries;  and  if,  in  accordance  with  the  pro- 
visions of  this  article  the  tax  is  paid  by  the  beneficiaries  upon 
undistributed  income  of  the  estate  or  trust,  no  additional  tax  is 
payable  by  them  upon  actual  distribution  thereof. 

When  Tax  Payable  by  Fiduciary  and  When  by  Beneficiary.— If 
income  is  received  by  the  executor  or  administrator  during  the 
period  of  administration,  and  is  not  during  such  period  properly 
paid  or  credited  to  a  beneficiary,  or  if  it  is  received  by  a  trustee 
in  trust  for  future  distribution,  the  tax  must  be  paid  by  the 
fiduciary  for  the  trust  or  estate,  the  personal  exemption  in  case 
of  a  resident  estate  or  trust  being  $1,000,  the  same  as  for  an 
unmarried  resident  individual.  (Art.  242-c.) 

But  if  the  income  is,  by  the  terms  of  the  will  or  deed  of  trust, 
properly  paid  or  credited  to  beneficiaries  or  is  distributable  to 
them  periodically,  whether  or  not  at  stated  intervals,  such  income 
is  regarded  as  income  of  the  beneficiaries,  and  the  tax  must  be 
paid  by  them  upon  their  distributive  shares,  whether  actually 
distributed  or  not,  in  the  same  manner  as  members  of  partner- 
ships are  required  to  pay  a  tax  on  their  shares  of  the  net  earnings 
of  the  partnership.  (Art.  242-d.)  As  stated  above,  no  additional 
tax  is  payable  by  the  beneficiaries  upon  an  actual  distribution 
of  earnings  upon  which  a  tax  has  already  been  paid. 

Where,  however,  under  the  terms  of  the  will  or  deed,  the  trustee 
may  in  his  discretion  distribute  income  periodically,  or  accumu- 
late it,  the  amount  actually  distributed  is  taxable  to  the  bene- 
ficiaries, and  the  amount  accumulated  is  taxable  to  the  trust; 
excepting  that  such  part  of  the  amounts  distributed  as  represents 
earnings  the  tax  upon  which  has  already  been  paid  by  the  trustee, 
need  not  be  reported  by  the  beneficiaries. 


448  THE    STATE    COMPTROLLERS    REGULATIONS 

Presumption  That  Distributions  Made  Ratably  from  Taxable  and 
Non-taxable  Income, — As  to  whether  any  particular  payment  to 
a  resident  beneficiary  represents  income  of  a  nonresident  estate 
or  trust  the  tax  upon  which  has  been  paid  by  the  fiduciary,  or  as 
to  whether  payments  made  to  beneficiaries,  whether  resident  or 
nonresident,  represent  income  which  is  exempt  by  law  from  tax, 
the  regulations  state  (Art.  242),  "  In  the  absence  of  any  specific 
allocation  of  income,  under  the  will  or  deed  of  trust,  every  dis- 
tribution shall  be  deemed  to  apply  ratably  to  taxable  and  non- 
taxable  income  of  the  estate  or  trust  and  the  beneficiary  must  be 
guided  by  the  same  allocation.7'  This  ruling  no  doubt  is  intended 
to  include  all  income  which  is  non-taxable,  whether  by  reason  of 
the  exempt  character  of  the  income  of  the  trust  or  estate,  or  by 
reason  of  the  nonresidence  of  the  trust  or  estate.  Of  course,  any 
income  which  would,  under  the  foregoing  rules,  be  taxable  to  a 
resident  estate  or  trust,  but  which  is  not  so  taxable  because  the 
estate  or  trust  is  a  nonresident,  would  be  taxable,  nevertheless, 
when  received  by  resident  beneficiaries.  "A  resident  beneficiary 
is  taxable  on  the  income  of  an  estate  or  trust  regardless  of  whether 
such  income  is  derived  from  sources  within  or  without  the  State 
and  without  consideration  as  to  whether  the  estate  or  trust  is  a 
resident  or  a  nonresident  estate  or  trust."  (Art.  245.) 

In  computing  income  of  an  estate  or  trust  from  sources  within 
the  State  of  New  York,  expenses  and  losses  incurred  in  earning 
income  from  sources  other  than  New  York  must  be  excluded  (sec- 
tion 360,  subdivision  11),  as  well  as  expenses  which  by  the  terms 
of  the  will  or  deed  or  by  rule  of  law  are  chargea-ble  against  the 
corpus  of  the  estate.  (Art.  254.) 

Illustrations  of  Taxation  of  Income  of  Resident  and  Nonresident 
Trusts —  Let  us  suppose  that  a  trust  has  a  net  income  (exclusive 
of  exempt  income)  of  $40,000,  of  which  three-fifths  ($24,000) 
is  to  be  accumulated  for  the  benefiit  of  unborn  or  unascertained 
persons,  one-fifth  ($8,000)  is  to  be  distributed  periodically  and 


Till;    STATE    COMPTROLLERS    REGULATIONS 


449 


equally  to  two  known  beneficiaries,  one  of  whom  is  a  resident  and 
the  other  a  nonresident,  and  one-fifth  ($8,000)  or  any  part  thereof 
may  be  distributed  to  these  same  known  beneficiaries  in  the 
fiduciary's  discretion,  of  which  amount  the  fiduciary  actually  dis- 
tributes one-half  and  retains  the  other  one-half  for  the  trust ;  also, 
that  one-half  the  net  income  of  the  trust  (exclusive  of  exempt  in- 
come) is  derived  from  New  York  and  one-half  from  other  sources. 
The  first  of  the  following  tables  will  illustrate  the  taxability 
of  the  income  of  this  trust  in  case  it  is  a  resident  of  New  York; 
and  the  second  table  will  illustrate  the  taxability  of  the  income 
of  such  trust  in  case  it  is  a  nonresident  of  New  York. 

Taxation  of  Income  of  Resident  Trust. 


APPORTIONMENT  OF  INCOME 

SOURCE  OF  INCOME 

By  Whom 
Tax  Payable 

Manda- 
tory 
Appor- 
tionment 
of  Will 
or  Deed 

Appor- 
tionment 
in  Fidu- 
ciary's 
Discre- 
tion 

Total 

New 
York 

Other 
Sources 

Total 
Taxable 
Income 

Resident      benefi- 
ciary   

$4,000 
4,000 
24,000 

$2,000 
2,000 
4,000 

$6,000 
6,000 
28,000 

$3,000 
3,000 
14,000 

$3,000 
3,000 
14,000 

$6,000 
3,000 
28,000 

Beneficiary 
Beneficiary 
Fid  ry 

Nonresident  bene- 
ficiary    ,  
Trust  —  for        ac- 
cumulation .... 

$32,000 

$8,000 

$40,000 

$20,000 

$20,000 

$37  ,  000 

Taxation  of  Income  of  Nonresident  Trust. 


APPORTIONMENT  OF  INCOME 

SOURCE  OF  INCOME 

By  Whom 
Tax  Payable 

Manda- 
tory 
Appor- 
tionment 
of  Will 
or  Deed 

Appor- 
tionment 
in  Fidu- 
ciary's 
Discre- 
tion 

Total 

New 
York 

Other 
Sources 

Total 
Taxable 
Income 

Resident      benefi- 
ciary   
Nonresident  bene- 
ficiary   
Trust  —  for       ac- 
cumulation .... 

$4,000 
4,000 
24,000 

$2,000 
2,000 
4,000 

$6,000 
6,000 
28,000 

$3,000 
3,000 
14,000 

$3,000 
3,000 
14,000 

$6,000 
3,000 
14,000 

Beneficiary 
Beneficiary 
Fiduciary 

$32,000 

$8,000 

$40,000 

$20,000 

$20,000 

$23,000 

15 


450  THE    STATE    COMPTROLLER'S    REGULATIONS 

In  the  case  of  the  resident  trust,  if  the  item  of  $28,000,  or  any 
part  thereof,  is  distributed  in  a  subsequent  year,  no  tax  is  pay- 
able by  the  beneficiaries,  since  the  tax  has  already  been  paid  in 
a  prior  year  by  the  fiduciary. 

In  the  case  of  the  nonresident  trust,  if  the  item  of  $28,000, 
which  represents  partly  non-taxable  and  partly  taxable  income 
of  the  trust,  or  any  part  thereof,  is  distributed  to  beneficiaries 
in  a  subsequent  year,  after  the  distribution  of  .any  undistributed 
distributive  shares  upon  which  the  tax  may  previously  have  been 
paid  by  the  beneficiaries,  resident  beneficiaries  participating  will 
be  required  to  pay  a  tax  on  an  amount  of  their  distribution  equal 
to  the  proportion  thereof  which  the  net  income  remaining  in  the 
trust  at  the  time  of  distribution,  upon  which  the  tax  has  not 
been  paid  by  the  fiduciary  (excluding  exempt  income),  bears  to 
the  total  net  income  remaining  in  the  trust  at  the  time  of  such 
distribution  (including  exempt  income).  If  $2,000  were  dis- 
tributed to  each  of  the  beneficiaries  the  resident  beneficiary  would 
pay  a  tax  on  14/28  of  $2,000,  or  $1,000  assuming  the  trust  had  no 
exempt  income.  In  the  case  of  the  nonresident  beneficiary,  how- 
ever, the  result  would  be  different;  for  since  all  income  of  the 
trust  from  sources  in  lSTew  York  has  previously  been  tax-paid,  he 
would  not  be  required  to  pay  any  tax  at  all  upon  his  distributive 
share. 

Sale  of  Property  Acquired  by  Gift  or  Bequest. —  (Art.  252.) 
Under  the  law  (section  353)  and  the  provisions  of  this  article, 
if  property  is  given  in  trust  prior  to  January  1,  1919,  and  the 
trustee  sells  such  property  subsequent  to  that  date,  in  order  to 
make  distribution  of  the  fund,  the  trustee  will  be  required  to 
pay  a  tax  upon  the  in-come  represented  by  the  difference  between 
the  fair  market  value  of  such  property  as  of  January  1,  1919, 
and  the  price  for  which  the  property  was  sold ;  but  if  the  trustee 
were  to  make  a  distribution  of  the  property  in  specie,  to  the 
beneficiaries,  and  the  beneficiaries  should  immediately  convert 


THE  STATE  COMPTROLLER'S  REGULATIONS         451 

the  property  into  money,  no  taxable  profits  would  be  realized, 
since  the  basis  for  determining  the  gain  or  loss  in  such  case  is 
the  value  of  the  property  as  of  the  date  of  receipt  by  the  bene- 
ficiaries and  not  as  of  January  1,  1919. 

Depreciation  and  Depletion  in  Case  of  Trust  or  Estate. — (Art.  254.) 
Under  the  Comptroller's  ruling,  a  reasonable  amount  is  deduct- 
ible by  the  fiduciary  for  depreciation  or  depletion  of  wasting  assets 
of  an  estate  or  trust,  regardless  of  whether  the  will,  deed,  or 
statute  requires  that  the  corpus  be  maintained  intact;  and  the 
fiduciary  or  beneficiaries,  as  the  case  may  be,  are  required  to  pay 
a  tax  only  upon  the  income  of  the  estate  or  trust  after  the  deduc- 
tion by  the  fiduciary  of  proper  amounts  for  depletion  or  deprecia- 
tion, such  amounts  being  regarded  as  capital,  exempt  from  tax. 

The  Federal  regulations  upon  this  subject,  since  the  passage 
of  the  Revenue  Act  of  1918,  are  identical  with  those  of  the 
•Comptroller.  Formerly,  however,  the  Federal  authorities  re- 
fused to  allow  such  deductions  in  case  of  a  trust  or  estate,  unless 
provided  for  in  the  will  or  deed  creating  it,  or  by  a  statute. 

When    Tax    Withheld,    Information    Returns    Not    Required.— 

(Art.  281.)  In  the  case  of  payments  to  a  nonresident  for  serv- 
ices rendered  within  the  State,  by  a  person,  firm,  association  or 
corporation  which  is  one  of  a  type  listed  in  this  article,  the  law 
provides  that  the  tax  shall  be  withheld  at  the  source  by  the  person 
making  payment.  In  such  cases  no  returns  of  information  are 
required.  Moreover,  if  the  person  making  payment  is  not  of  a 
type  listed  in  this  article,  or  if  the  payments  are  for  services 
rendered  without  the  State,  no  tax  is  required  to  be  withheld  at 
the  source,  nor  is  any  return  of  information  required. 

The  payments  with  which  this  article  is  concerned  are  those  of 
$1,000  or  more  which  are  made  during  the  calendar  year  to  a 
resident.  In  this  class  of  cases  no  tax  is  to  be  withheld  at  the 


452  THE    STATE    COMPTROLLER'S    REGULATIONS 

source,  and  returns  of  information  are  or  are  not  required,  accord- 
ing to  the  status  of  the  person  making  the  payment.  Such  re- 
turns are  required  to  be  made  when  the  person,  firm,  association 
or  corporation  making  payment  is  one  of  a  type  listed  in  this 
article  (as  to  interest  on  registered  bonds,  see  article  287)  ;  in 
all  other  cases  such  returns  of  information  are  not  required. 

Calendar  Year  versus  Taxable  Year —  While  this  article  requires 
returns  of  information  to  be  made  concerning  all  payments  to  a 
taxpayer  of  fixed  or  determinable  taxable  income  of  $1,000  or 
more  in  a  "  calendar  year,"  it  is  to  be  noted  that  the  law  (sec- 
tion 366,  subdivision  2)  provides  that  such  returns  shall  be 
required  concerning  all  such  payments  "in  any  taxable  year." 
The  substitution  of  calendar  year  for  taxable  year  avoids  con- 
fusion, however,  since  the  person  making  payment  could  not  be 
expected  to  know  what  period  was  included  in  the  recipient's 
taxable  year  in  case  it  did  not  coincide  with  the  calendar  year. 

Credit  for  Taxes —  (Art.  482.)  The  taxes  here  referred  to  are 
not  deductions  from  gross  income  (section  360,  subdivision  3), 
but  are,  as  this  article  states,  deductions  from  (or  credits  to)  the 
total  New  York  State  Income  Tax  otherwise  payable  (sec- 
tion 363). 

Penalties  for  Fraudulent  Returns — (Art.  481.)  A  nonresident 
must  exercise  care  in  disclosing  his  gross  income  from  all  sources, 
both  within  and  without  the  State,  since,  in  case  of  fraud,  the 
tax  may  be  assessed  upon  his  gross  income  in  lieu  of  his  net 
income  from  sources  within  New  York  (section  367).  More- 
over, section  376.  subdivision  1,  provides:  "Any  person  * 
who  makes  any  false  or  fraudulent  return  or  statement,  with  intent 
to  evade  any  tax  imposed  by  this  article,  shall  be  guilty  of  a  mis^ 
demeanor  and  shall,  upon  conviction,  be  fined  not  to  exceed  one 


TIIK  STATK  COMPTEOIXBB'S  REGULATIONS  453 

thousand  dollars,  or  be  imprisoned  not  to  exceed  one  year,  or  both, 
at  the  discretion  of  the  court."  And  the  same  section,  subdi- 
vision 3,  provides :  "  If  any  person  liable  to  taxation  under  this 
article  makes  any  false  or  fraudulent  return  or  statement,  with 
intent  to  evade  any  tax  imposed  by  this  article,  and  an  additional 
amount  is  discovered  to  be  taxable,  such  additional  amount  shall 
be  subject  to  twice  the  ordinary  rate  of  taxation  *  *  *.  This 
penalty  di-all  be  additional  to  all  other  penalties  in  this  or  any 
other  section  provided/' 

It  seems,  therefore,  that  a  nonresident  who  makes  a  fraudu- 
lent report  will  be  subject  to  the  following  penalties:  (1)  A  tax 
at  the  ordinary  rates  upon  his  gross  income  from  sources  in 
Xew  York,  in  lieu  of  a  like  tax  upon  his  net  income  from  such 
sources;  (2)  a  specific  penalty  of  not  more  than  $1,000;  and 
(3)  a  tax  at  double  the  ordinary  rates  upon  the  portion  of  his 
net  income  from  sources  within  New  York  which  was  fraudu- 
lently omitted  from  his  report.  The  voluntary  filing  of  a  cor- 
rect return  within  sixty  days  after  March  15th,  in  accordance  with 
the  provisions  of  section  376,  subdivision  2,  does  not  cure  a 
fraudulent  return  so  as  to  avoid  the  specific  penalty  of  not  more 
than  $1,000  in  such  case  provided.  Such  voluntary  filing  of  a 
correct  return  is  intended  to  relieve  from  that  penalty  only  those 
who  in  good  faith  omitted  or  refused  to  file  any  return  whatever 
at  the  time  fixed  by  law. 

Who  Are  Residents. —  (Art.  501.)  The  law  does  not  define  the 
term  "resident,"  although  it  is  stated  in  section  350,  subdi- 
vision 7,  that  the  term  as  used  in  the  act  includes  "  any  person 
who  shall,  at  any  time  on  or  after  January  first  and  not  later 
than  March  fifteenth  "  of  the  calendar  year  following  the  taxable 
year  "  be  or  become  a  resident  of  the  State."  It  will  be  observed 
that  the  dates  mentioned  are  respectively  the  "first  and  last  days 
on  which  a  return  of  income  for  the  preceding  taxable  year  may 
be  filed  without  penalty. 


454  THE    STATE    COMPTROLLER'S    REGULATIONS 

Residence  in  Certain  Cases  Largely  a  Question  of  Intent — The 

gist  of  articles  501-504  seems  to  be  that  the  question  of  residence 
is  largely  determined  by  the  intent  with  which  the  person  con- 
cerning whom  the  question  arises  entered  the  State.  If  he  had 
at  that  time  the  intention  of  making  his  permanent  home  in  the 
State,  or  if  he  then,  had  no  definite  intention  of  residing  in  some 
other  jurisdiction  (Liscomb  v.  Railroad  &  Transp.  Co.,  6  Lans. 
75),  or  if  at  that  time  he  had  such  definite  intention  of  residing 
in  another  jurisdiction,  but  finds  it  expedient  to  remain  within 
the  State  for  such  length  of  time  as  will  enable  him  to  accumulate 
sufficient  funds  for  his  journey,  he  is  a  resident  from  the  time 
he  enters  the  State,  and  continues  to>  be  a  resident  until,  by  similar 
conduct  and  intent,  he  establishes  a  residence  elsewhere. 

Facts  Establishing  Intent — The  person's  statement  that  he  is 
not  a  resident  must  be  supported  by  facts.  His  purpose  in  enter- 
ing the  State,  as  evidenced  by  his  declarations  or  subsequent 
conduct  (Peterson  v.  Chemical  Bank,  32  N.  Y.  21)  ;  the  domicile 
of  his  family,  if  any  (Burke  v.  Lawrence,  17  How.  Pr.  544 ;  Lee 
v.  Stanley,  9  id.  272;  Campbell  v.  Campbell,  90  Hun.  233),  and 
his  residence  for  election  purposes  James  v.  Surrogate,  36  Hun, 
218;  the  location  of  his  place  of  business  or  employment,  if  any; 
the  length  of  time  he  has  remained  with  the  State  (Elbers  v. 
Insurance  Co.,  16  Johnson,  128)  ;  whether  he  owns  real  prop- 
erty with  the  State  Ploughton  v.  Ault,  16  How.  Pr.  77;;  and 
various  other  matters  would  be  proper  for  consideration  in  deter- 
mining the  question  of  intent.  (See  Cases  in  Chap.  XXV 
Supra) . 

Definition  Given  in  Regulations  Misleading — The  definition 
given  in  the  first  sentence  of  article  501  is  an  unhappy  one  which 
does  not  harmonize  with  the  illustrations  given  in  the  two  next 
succeeding  articles.  It  would  have  been  better  to  omit  altogether 


455 

the  phrase  "and  from  which  he  has  no  present  intention  of  re- 
moving." The  expression  is  vague,  indefinite  and  misleading. 
It  is  no  doubt  intended  to  exclude  the  "typical  transient" 
referred  to  in  article  502  {Crawford  v.  \Yilsoii,  4  Barb.  504)  ; 
it  certainly  does  not  refer  to  those  who  have  been  admittedly 
and  continuously  residents  of  the  State  for  many  years.  (Chains 
v.  Wilson,  8  Abb.  Pr.  78,  and  note;  Bassett  v.  Wheeler,  84  N.  Y. 
466.)  The  status  of  such  persons  for  purposes  of  the  tax  is 
determined  as  of  the  last  day  of  their  taxable  year.  Such  per- 
sons, if  residents  on  the  last  day  of  their  taxable  year,  are  resi- 
dents for  the  purpose  of  making  returns,  even  though  they  may 
at  that  time  have  a  definite  intention  of  removing  from  the  State, 
and  even  though  in  pursuance  of  such  intention  they  actually 
become  nonresidents  prior  to  the  succeeding  15th  day  of  March. 

Recent  Ruling  of  Comptroller  Conflicts  with  Article  501. —  Under 
a  later  ruling  of  the  Comptroller  published  in  the  New  York 
Law  Journal  Jan.  16,  1920,  if  a  person  is  a  resident  of  New  York 
at  any  time  during  his  taxable  year  (fiscal  or  calendar,  as  the 
case  may  be),  he  is  taxable  as  a  resident  upon  his  entire  net 
income  from  all  sources  during  such  taxable  year.  According 
to  this  ruling,  not  only  intent  to  remove,  but  actual  removal  and 
establishment  of  residence  elsewhere,  is  insufficient  to  relieve  such 
a  person  from  tax,  as  a  resident,  upon  the  entire  net  income  of 
his  taxable  year. 

The  truth  must  He  somewhere  between  these  two  extremes. 
Certainly,  the  ruling  published  in  the  New  York  paper,  referred 
to  above,  cannot  be  supported  upon  principle,  or  by  any  provision 
of  the  law. 

Apportionment  Theory. —  Another  theory  which  would  naturally 
suggest  itself  is,  that  the  income  and  exemption,  for  the  taxable 
year,  of  a  person  establishing  a  residence  outside  of  the  State 


456  THE    STATE    COMPTKOLLEB's    KEGULATIONS 

during  such  taxable  year,  should  be  apportioned  for  purposes 
of  the  tax,  in  the  proportion  which  the  part  of  the  taxable  year 
during  which  such  person  was  a  resident  bears  to  the  whole  of  such 
taxable  year.  But  even  this  theory  is  unsound  and  impractical. 
The  law  taxes  residents  and  nonresidents,  and  no  reference  is 
made  therein  to  persons  who  are  both  residents  and  nonresidents. 
The  law  declares  that  the  net  income  of  a  person,  whether  a  resi- 
dent or  a  nonresident,  is  to  be  determined  as  of  the  close  of  his 
"  taxable  year"  (fiscal  or  calendar,  as  the  case  may  be). 
(Section  358.)  Assuming,  then,  that  such  person  has,  at  the 
close  of  his  taxable  year,  a  net  income  of  $1,000  if  single,  of 
$2,000  if  married,  the  question  is:  Is  such  person  a  resident  or 
a  nonresident  ?  If  the  person  is  a  resident,  he  is  entitled  to  a 
personal  exemption;  if  he  is  a  nonresident,  he  is  entitled  to  no 
personal  exemption.  If  he  is  a  resident,  he  may  deduct  all 
expenses  and  losses  incurred  in  earning  taxable  income;  if  he  is 
a  nonresident,  he  may  deduct  only  a  proportionate  part  thereof. 
(Section  360,  subdivision  11.)  Moreover,  if  he  is  a  nonresident, 
the  tax  must  be  withheld  at  the  source.  (Section  366.)  Are 
withholding  agents  to  refuse  to  deduct  the  tax  on  fixed  or  deter- 
minable  income  paid  by  them  to  a  person  in  their  employ, whom 
they  know  to  be  a  nonresident  at  the  close  of  his  taxable  year, 
merely  because  they  also  know  that  at  some  time  during  such  year 
he  was  a  resident  of  the  State?  And  is  it  not  incumbent  upon 
them  to  verify,  as  of  the  close  of  such  taxable  year,  the  residential 
status  of  employees  who  previous  to  that  time  shall  have  filed 
with  them  certificates  of  residence  ?  If  the  ruling  of  the  Comp- 
troller relieves  withholding  agents  from  this  duty,  it  is  likely 
to  be  a  boomerang. 

Determination  of  Residential  Status —  The  only  rule  for  deter- 
mining residential  status  which  will  not  conflict  with  the  law  as 
enacted  is,  that  if  at  the  close  of  the  taxpayer's  taxable  year  he  is 


THE    STATE    COMPTROLLER'S    REGULATIONS  457 

a  resident  of  the  State,  he  must  be  taxed  as  a  resident;  and  if  at 
the  close  of  his  taxable  year  he  is  a  nonresident,  he  must  be  taxed 
as  such,  unless  subsequent  to  that  time,  and  on  or  before  the  suc- 
ceeding 15th  day  of  March,  he  becomes  a  resident  of  the  State, 
iu  which  case  he  is  to  be  taxed  as  a  resident.  (Section  350, 
subdivision  7.) 

Residence  of  Married  Woman. —  A  married  woman  may  estab- 
lish a  residence  apart  from  that  of  her  husband,  if  separated 
or  divorced,  or  if  the  husband  deserts  her  unjustly  or  his  conduct 
justifies  her  in  leaving  him.  (Harry  v.  Dodge,  66  Misc.  302 ; 
Post  v.  Post,  149  App.  Div.  452;  Atherton  v.  Atherton,  82  Hun, 
179;  affd.,  155  1ST.  Y.  129.) 

Residence  of  Incompetent — Under  section  8  of  the  Tax  Law 
the  residence  of  an  incompetent  for  tax  purposes  is  his  place  of 
residence  prior  to  commitment.  (City  v.  Brinckerhoff,  63  Misc. 
445.) 

Emancipated  Minor — An  emancipated  minor  may  establish  a 
residence  apart  from  that  of  his  or  her  father.  (Matter  of  Mc- 
Dowle,  8  Johns.  328;  Matter  of  WaUron,  13  'Johns.  418;  People 
v.  Pillow,  3  Super.  Ct.  672;  Wehle  v.  Weisseribach,  60  K".  Y. 
385.) 

Separate  Returns  of  Husband  and  Wife — (Art.  521.)  Under 
this  article  a  separate  return  by  the  wife,  or  a  joint  return  of 
husband  and  wife,  is  not  required,  provided  the  husband  includes 
his  wife's  income  in  his  own  return.  If,  however,  the  combined 
income  of  husband  and  wife  exceeds  $10;000,  separate  returns 
should  be  made,  in  order  that  each  may  receive  the  full  benefit 
of  the  low  rate  of  tax  on  the  first  bracket  of  taxable  income.  As 
to  apportionment  of  personal  exemption  between  husband  and 
wife,  see  page  446,  supra. 


458  THE    STATE    COMPTROLLER'S    REGULATIONS 

Fiduciary  May  Make  Returns  by  Agent. —  (Art.  522.)  This 
article  permits  a  fiduciary,  under  certain  circumstances,  to  make 
returns  by  an  agent.  This  is  not  permitted  under  the  Federal 
regulations. 

JSFo  Personal  Exemption  for  Nonresidents —  (Art.  523.)  While 
the  law  does  not  provide  any  personal  exemption  for  nonresidents 
of  $1,000  or  $2,000,  as  in  the  case  of  residents,  the  tax  does  not 
apply  to  the  income  of  a  nonresident  from  sources  within  the 
State  unless  such  income  amounts  to  $1,000  or  more,  if  the  non- 
resident is  unmarried  and  is  not  the  head  of  the  family,  or  to 
$2,000  or  more,  if  the  nonresident  is  the  head  of  a  family  or  a 
married  person  living  with  husband  or  wife  (section  367),  in 
which  case  the  tax  applies  to  the  entire  amount  so  received  from 
sources  within  the  State.  However,  an  unmarried  person,  whether 
the  head  of  a  family  or  not,  is  required  to  make  a  return  and  dis- 
close his  status,  if  his  income  is  $1,000  or  more  for  the  taxable 
year. 

Returns  Where  Excessive  Tax  Withheld — Notwithstanding  the 
rate  of  tax  imposed  by  law  (section  351)  upon  the  first  $10,000 
of  taxable  income  is  1  per  cent.,  section  366  requires  every  em- 
ployer ("withholding  agent")  to  deduct  and  pay  to  the  Comp- 
troller on  or  before  March  15th,  2  per  cent  from  all  salaries,  wages 
etc.,  for  personal  services,  amounting  to  $1,000  or  over,  and 
paid  to  a  nonresident  during  the  preceding  taxable  year.  The 
incongruity  of  these  provisions  of  law  was  so  apparent  that  the 
Comptroller,  acting  upon  advice  from  the  Attorney-General,  has 
ruled  (article  261)  that  only  1  per  cent,  need  be  withheld  from 
the  first  $10,000  of  such  income,  including  all  payments  of  $1,000 
or  over.  The  law,  as  so  administered,  still  applies,  however,  to 
all  payments  of  the  kind  specified,  whether  made  to  nonresidents 
who  are  married  or  are  heads  of  families,  or  to  those  who  are 


THE    STATE    COMPTROLLER'S    REGULATIONS  459 

unmarried  and  who  are  not  heads  of  families.  It  is  apparent, 
therefore,  that  the  tax  must  be  withheld  and  paid  to  the  Comp- 
troller, in  many  cases,  where  no  tax  is  due  because  the  payee  is 
married,  or  is  the  head  of  family,  and  that,  in  other  cases,  the 
tax  due  will  be  less  than  the  amount  so  required  to  be  withheld, 
because  the  payee  has  business  expenses  or  losses  to  offset  against 
the  income  received.  In  all  such  cases  a  return  must  be  filed 
showing  the  true  amount  of  net  income  from  sources  within  the 
State,  and  requesting  that  refund  be  made  of  any  excess  tax  so 
withheld  and  paid  to  the  Comptroller.  Section  377,  subdivision 
4,  provides  that  any  such  excess  shall,  as  soon  as  practicable,  be 
refunded  by  the  Comptroller  out  of  the  proceeds  of  the  tax 
retained  by  him  as  provided  by  law. 

Returns  Where  Tax  Withheld  Because  No  Certificate  of  Residence 
Filed — Where  the  employee  or  person  receiving  income  fails  or 
refuses  to  file  a  certificate  of  residence  with  the  person  making 
payment  of  such  income,  the  tax  will  be  withheld  and  paid  to 
the  Comptroller,  and  a  return  must  be  filed  by  the  recipient,  with 
the  Comptroller,  on  or  before  March  15th,  together  with  an  affi- 
davit claiming  refund  of  any  excess  tax  withheld  because  of  failure 
or  refusal  to  file  such  certificate. 

Returns  by  Executors  and  Administrators  upon  Final  Accounting; 
Comptroller's  Ruling — (Art,  542.)  Attention  is  called  to  the 
following  language  of  this  article: 

"  Upon  the  completion  of  the  administration  of  an  estate  and  final 
accounting,  an  executor  or  administrator  shall  file  a  return  of  income 
of  the  estate  for  the  portion  of  the  taxable  year  in  which  the  administra- 
tion was  closed.  *  *  *  In  any  such  case  the  tax  must  be  paid  at 
the  time  the  return  is  filed." 

3 


460  THE  STATE  COMPTROLLERS  REGULATIONS 

The  foregoing  rulings  are  misleading  and  must  be  read  in  con- 
nection with  section  369  of  the  law,  which  provides  that  "  Fidu- 
ciaries required  to  make  returns  under  this  article  shall  be  subject 
to  all  the  provisions  of  this  article  which  apply  to  taxpayers/7  and 
also  section  371,  which  provides  that  "  Returns  shall  be  made  to 
the  Comptroller  on  or  before  the  fifteenth  day  of  March  in  each 
year  of  the  taxpayer's  net  income  for  his  last  preceding  taxable 
year." 

Burden  of  Proof;  Presumption  That  Comptroller's  Assessment  Cor- 
rect— (Art,  573.)  The  "burden  of  proof"  referred  to  in  this 
article  relates  only  to  applications  made  to  the  Comptroller  for 
a-batement  or  refund  of  taxes  alleged  to  have  been  erroneously  or 
illegally  assessed  or  collected.  The  same  rule  applies  to  certiorari 
proceedings  in  the  supreme  court  to  review  the  determination  of 
the  Comptroller,  and  has  been  so  decided  by  the  courts  (see  Chapts. 
XV,  XXI  and  XXII  supra.)  Under  the  Federal  practice, 
section  3176  of  the  Revised  Statutes,  as  amended,  expressly  pro- 
vides that  the  determination  of  the  Commissioner  of  Internal 
Revenue,  in  case  of  an  additional  assessment,  "  shall  be  prima 
facie,,  good  and  sufficient  for  all  legal  purposes,"  and  hence  under 
this  section,  in  case  of  suit  for  recovery  of  taxes  paid,  the  burden 
is  clearly  imposed  upon  the  taxpayer  to  prove  that  the  assessment 
was  erroneous  or  illegal. 

No  Statute  of  limitations  Affects  Right  of  State  to  Sue. There 

is  no  statute  of  limitations  affecting  the  right  of  the  State  to  sue 
for  the  recovery  of  taxes  claimed  by  it  to  be  due. 

Penalties;  Comptroller's  Ruling — (Art.  566.)  As  the  law 
(sections  376  and  379)  is  interpreted  in  paragraph  4  of  this 


THE  STATE  COMPTROLLER'S  REGULATIONS  461 

article,  any  taxpayer  who  in  good  faith  fails  or  refuses  to  make 
a  return  within  the  prescribed  time,  but  who  makes  a  correct 
return  of  income  within  sixty  days  thereafter,  is  relieved  from  the 
penalty  prescribed  in  subdivision  3  of  section  376,  and  is  subject 
only  to  the  penalties  provided  in  section  376,  subdivision  2,  and 
section  379,  subdivision  2,  the  penalties  of  these  two  subdivisions, 
for  this  purpose,  being  consolidated. 


CHAPTER  XXXVI. 

THE  STATE  COMPTROLLERS'S  REGULATIONS  (CONTINUED). 

Withholding  and  Information  at  the  Source. 

Income  from  Personal  Service  Only  Deducted —  In  Chapter  XXVI, 
supra,  the  statutory  provisions  as  to  withholding  and  information 
at  the  source  were  discussed  and  analyzed.  In  commenting  on 
the  State  Comptroller's  regulations  for  deducting  and  withholding 
the  tax  at  the  source,  it  should  again  be  borne  in  mind  that  while 
the  statue  (section  350,  subdivision  10)  defines  a  withholding 
agent,  not  all  "  withholding  agents  "  as  so  defined  a  withhold. 
Thus  a  withholding  agent  (section  350)  is  defined  as  one  having 
the  "  control,  receipt,  custody,  disposal  or  payment  of  interest, 
rents,  salaries,  wages,  premiums,  annuities,  compensations,  re- 
munerations, emoluments  or  other  fixed  or  determinable  annual 
or  periodical  gains,  profits  and  income  taxable  under  this  article ;" 
but  rent,  interest,  annuities  and  premiums  of  nonresidents  are 
not  deducted,  and  although  such  payments  may  be  classed  under 
the  head  of  "  fixed  or  determinable  annual  or  periodical  gains, 
profits  and  income  "  they  are  not  income  from  personal  services 
and  it  is  only  such  income  as  is  comprehended  under  the  term 
"  personal  service  "  that  is  deductible  and  withheld.  Article  261 
of  the  Comptroller's  regulations  emphasizes  that  fact  by  pointing 
out  that  only  the  "  income  from  all  salaries,  wages,  commissions, 
gratuities,  emoluments,  perquisities  and  other  fixed  and  determi- 
nable annual  or  periodical  compensation  earned  for  personal  serv- 
ices in  a  business,  trade,  profession  or  occupation  carried  on  within 
the  State  is  to  be  deducted." 

462 


)        463 

No  More  Than  2  Per  Cent  Withheld — While  the  statute  required 
2  per  cent  to  be  deducted  from  all  such  personal  service  incomes, 
where  it  equalled  or  exceeded  $1,000  in  the  case  of  a  nonresident, 
the  Comptroller's  regulations  (article  261)  only  provide  for  the 
deduction  of  1  per  cent  on  $10,000  and  2  per  cent  on  suma  in 
excess  of  $10,000.  In  other  words,  a  smaller  amount  is  deducted 
under  the  regulations,  under  the  advice  of  the  Attorney-General 
(see  Income  Tax  letter  No.  1,  May  29,  1919)  than  under  the 
statute,  which  called  for  a  withholding  of  2  per  cent.  The  reason 
for  this  discrepancy  between  the  regulation  and  the  statute  was 
because  the  original  bill  introduced  in  the  Legislature  called  for 
a  flat  rate  of  2  per  cent  on  all  income,  and  hence  for  deduction  of 
the  same  amount,  but  in  the  closing  days  of  the  session,  the  tax 
was  fixed  at  a  progressive  rate  of  1,  2  and  3  per  cent,  and  the 
deduction  should  have  been  at  the  same  rates  in  the  appropriate 
cases. 

Through  an  oversight,  the  withholding  provision  of  2  per  cent 
in  the  original  bill  was  retained,  and  hence,  the  regulation  for 
withholding  has  been  made  to  conform  to  the  rate  of  tax  as  imposed 
at  1  and  2  per  cent,  but  not  at  3  per  cent.  This  undoubtedly 
was  done  to  conform  the  regulation  to  the  spirit  of  the  law.  The 
regulation  calls  for  withholding  something  less  than  the  rate  of 
tax  imposed,  where  the  income  was  $50,000  or  more,  but  it  would 
be  taking  away  property  without  due  process  of  law  if  it  with- 
held something  more  in  such  cases. 

No  Tax  Withheld,  Unless  Income  is  $1,000  or  More — No  tax 
is  withheld  or  deducted  in  the  case  of  a  nonresident,  unless  the 
income  is  at  least  $1,000  whether  the  recipient  is  married  or 
unmarried.  When  the  income  equals  this  figure,  the  deduction 
is  made  on  the  total  income  received,  because  in  the  case  of  a 
nonresident  no  exemption  is  allowed.  An  erroneous  impression 


464:         THE   STATE   COMPTROLLER'S   REGULATIONS (cONT?D) 

is  conveyed  that  by  this  means  there  is  an  exemption  to  the  non- 
resident of  $1,000. 

The  opinion  of  the  Attorney-General,  which  follows,  explains 
this  apparent  inconsistency.  The  real  basis  for  computing  the 
tax  is  the  return  and  no  return  is  required  in  any  case  whether 
resident  or  nonresident,  ivhen  the  net  income  is  less  than  $1,000 
(if  single)  or  $2,000  (if  married). 

(Attorney-General's  Income  Tax  Letter  No.  11.) 

No  Return  or  Tax  Liability  on  Net  Taxable  Incomes  of  Less  Than 
$1,000  in  Any  Event  ($2,000,  if  Married). 

OFFICE  OF  THE  ATTORNEY-GENERAL. 

ALBANY,  N.  Y.,  November  10,  1919. 
Hon.  EUGENE  M.  TRAVIS,  Comptroller, 

Albany,  N.  Y., 
Attention  of  Mr.  Graves. 

DEAR  SIR: 

I  have  considered  the  questions  contained  in  your  letter  dated  Septem- 
ber 18,  1919.  You  cite  the  controlling  sections  of  the  Tax  Law,  and 
inquire :  ( 1 )  Assuming  an  officer  of  the  United  States  Army,  residing 
in  this  state,  receives  from  the  federal  government  a  salary  of  $4,000  and 
has  other  income  of  $900  not  exempt  nor  excluded  from  gross  income;  is 
such  officer  liable  to  the  income  tax  on  the  $900?  (2)  Is  the  comptroller 
authorized  to  require  residents  or  non-residents  to  render  a  return  or  to 
pay  a  tax  on  an  amount  of  net  income  of  less  than  $1,000;  or  was  it  the 
intention  of  the  legislature  that  no  tax  should  be  imposed  in  any  case 
where  the  net  income  of  a  resident  or  non-resident  is  less  than  $1.000. 

The  second  question  really  includes  the  first,  and  the  answer  to  the  first 
is  corollary  to  the  answer  to  the  second,  so  I  shall  consider  them  in 
reverse  order. 

(2)  While  it  is  true  that  section  351  in  laying  down  the  general  basis 
for  income  taxation,  provides  for  a  tax,  at  specified  rates,  on  the  "  entire 
net  income  as  herein  defined  "  of  residents,  and  on  the  "  entire  net  income 
as  herein  defined "  derived  from  specified  sources  within  the  state,  by 
non-residents,  that  section  must  be  read  in  conjunction  with  the  other 
sections  of  the  article,  and  where  other  sections  make  specific  exceptions 
to  the  general  rule,  they  must  control.  It  is  obvious  that,  in  spite  of 
the  general  rules,  taxes  do  not  become  payable  by  residents  on  the  "  entire 


THE   STATE   COMPTROLLER'S   REGULATIONS  -  (CONT'D)        465 


net  income  as  herein  defined."  Gross  income,  excluding  certain  items 
which  because  of  their  nature  do  not  fall  within  what  the  legislature 
regarded  as  "  income,"  and  excluding  certain  other  items  which  are  in 
the  nature  of  income  but  which  are  derived  from  exempt  sources,  is  care- 
fully denned  in  section  359.  And  in  section  360  it  is  provided  that  "  in 
computing  net  income  there  shall  be  allowed  as  deductions''  certain 
specified  items.  Net  income  is  defined  in  section  357  as  gross  income  less 
the  "  deductions  "  allowed  by  this  article.  But  before  the  tax  is  com- 
puted, a  further  amount  is  "  exempted  "  from  the  tax  by  section  362,  in 
the  case  of  residents.  This  amount  exempted  cannot  be  regarded  as  a 
"  deduction  "  to  be  taken  out  in  computing  "  net  income,"  for  it  is  sub- 
tracted from  "  net  income  "  after  the  latter  has  been  computed.  This  is 
demonstrated  by  the  fact  that  section  362,  subdivision  2,  specifically 
provides  that  a  husband  and  wife  living  together  shall  receive  but  one 
personal  exemption  of  two  thousand  dollars  "  against  their  aggregate 
net  income."  (The  adjective  "  aggregate  "  is  not  inserted  for  the  purpose 
of  distinction  between  "  net  income  "  as  computed  under  section  360  and 
something  else,  but  to  show  that  the  "  net  income  "  of  the  husband  and 
the  "  net  income  "  of  the  wife  are  to  be  considered  together.  ) 

If  the  provision  of  section  351  that  the  tax  is  payable  on  the  "  entire 
net  income  "  can  be  modified  by  the  subtraction  of  amounts  exempted 
under  section  362,  it  can  be  modified  in  other  ways  by  the  other  sections 
of  the  article. 

The  only  basis  for  computation  of  taxes,  contemplated  by  the  article,  is 
a  return.  And  the  only  basis  for  collection  of  the  tax  is  the  computation 
so  made  upon  the  return.  It  follows  that  the  collection  of  a  tax  is  con- 
templated only  where  a  return  is  required. 

An  individual  is  required  to  make  a  return  (Sec.  367)  only  when  his 
net  income  is  $1,000  (if  single)  or  $2,000  (if  married)  or  over.  A  with- 
holding agent  (Sec.  366)  is  required  to  make  returns  only  with  respect 
to  individuals  receiving  $1,000  or  over.  And  a  fiduciary  (Sec.  369)  is 
required  to  make  returns  only  with  respect  to  individuals  receiving 
$1,000  (if  single)  or  $2,000  (if  married)  or  over.  No  return  is  con- 
templated where  the  net  income  is  less  than  the  stated  amount.  And  it 
follows  that  no  collection  is  contemplated  in  such  cases. 

Payment  is  required  at  the  time  of  filing  the  return  (  Sec.  366,  subd.  2  ; 
377,  subd.  1  )  —  no  time  for  payment  is  fixed  where  no  return  is  filed.  This 
further  indicates  the  intent  that  no  tax  shall  be  collected  where  no  return 
is  required. 

Even  if  we  assumed  that  the  legislature  intended  a  tax  to  be  collected 
where  no  return  is  filed,  we  have  no  method  provided  for  its  computation, 
nor  any  time  fixed  for  its  payment  —  and  the  intent  would  fail  of 
execution. 


466          THE   STATE   COMPTROLLER'S   REGULATIONS ( 

Section  383  authorizes  the  Comptroller  to  make  rules  and  regulations 
to  enforce  the  provisions  of  the  article,  but  such  regulations  must  be  con- 
sistent with  the  specific  provisions  of  the  article.  Where  the  article 
specifically  provides  that  returns  shall  be  made  whenever  a  net  income 
exceeds  $1,000  or  $2,000,  the  rule  inclusio  unius  est  exclusio  alterius 
should  be  applied  to  its  construction,  and  it  should  be  construed  to  imply 
that  where  net  incomes  are  less  than  the  specified  amounts,  no  return  is 
required.  A  regulation  by  the  Comptroller,  requiring  returns  on  net 
incomes  of  less  than  $1,000  or  $2,000,  would  not  be  in  furtherance  of  the 
provisions  of  the  article,  but  in  violation  of  them. 

Hence  the  answer  to  the  second  question  is  that  the  Comptroller  has 
no  power  to  make  a  regulation  requiring  an  individual  whether  resident 
or  non-resident,  or  a  fiduciary,  to  make  returns  with  respect  to  incomes 
under  $1,000  (for  a  single  man,  etc.)  or  $2,000  (for  a  married  man,  etc.), 
nor  requiring  a  withholding  agent  to  make  a  return  with  respect  to  an 
income  of  less  than  $1,000.  If  it  be  argued  that  the  purpose  of  the  statute 
is  thus  in  part  defeated,  the  answer  to  that  argument  is  that  such  defeat 
is  necessitated  by  the  unambiguous  language  of  the  statute  itself. 

(1)  The  answer  to  the  first  question  follows  logically.  If  an  officer  of 
the  United  States  has  a  "net  income"  of  less  than  $1,000  (if  single)  or 
$2,000  (if  married),  he  need  make  no  return,  even  though  he  be  entitled 
to  no  "exemption"  (of  Sec.  362,  subd.  3)  on  that  part  of  his  income. 
And  if  he  makes  no  return,  there  is  no  time  fixed  at  which  he  must  pay  a 
tax  and  no  basis  for  the  computation  of  a  tax. 

Yours  very  truly, 

CHARLES  D.  NEWTON, 

Attorney-General. 
By  JAMES  S.  Y.  IVINS, 

Deputy. 

Payment  for  Professional  Services  on  an  Annual  Basis. —  Pay- 
ment for  professional  services  on  an  annual  retainer  basis  would 
seem  to  refer  to  a  lawyer,  doctor,  architect  or  engineer  who  is 
paid  a  regular  salary.  It  evidently  does  not  refer  to  a  professional 
man  having  an  established  office  or  place  of  business  in  New 
York  and  employing  others  to  assist  him  in  his  work.  This 
would  seem  to  be  true  from  the  special  ruling  of  the  State  Comp- 
troller in  the  case  of  an  insurance  agent  having  a  general  office 
in  the  State  which  is  given  here  in  full. 


THE   STATE   COMPTROLLER'S   REGULATIONS  --  (CONT'D)        467 


Withholding  in  the  case  of  commissions  paid  to  general  insurance 
agents  and,  by  them,  to  their  soliciting  agents.  "  In  reply  to  your 
letter  of  October  10  you  are  advised  that  the  deducting  and  withholding 
regulations  do  not  apply  with  respect  to  commissions  paid  to  general 
agents  who  maintain  offices  and  employ  soliciting  agents,  paying  the 
expenses  of  the  office  and  the  commissions  of  the  soliciting  agents  out  of 
their  receipts  of  commissions." 

The  general  agent,  however,  must  deduct  and  withhold  with 
respect  to  commissions  paid  by  him  to  soliciting  agents,  working 
within  the  State  of  New  York,  who  do  not  file  a  certificate  of 
residence  on  Form  101. 

Art.  265.  Income  Not  Subject  to  Withholding. 

(a)  Income  of  residents,  provided  certificate  101  is  filed. 

(b)  If  the  service  was  other  than  personal  and  not  for  a  fixed 
or  determinable  period,  viz.  :  work  done  in  the  State  by  a  nonresi- 
dent   printer,    architect,    engineer,    not   employed    at    a    yearly, 
monthly,  weekly  or  daily  basis  and  having  an  office  or  place  of 
business  of  his  own. 

(c)  "  Where  the  personal  services  are  rendered  entirely  with- 
out the  state  by  a  nonresident,  whether  payment  be  made  from 
within  or  without  the  state,  irrespective  of  the  status  of  the  with- 
holding agent.     The  occasional  entry  into  the  state  of  a  nonresi- 
dent employee  who  performs  the  duties  for  which  he  is  employed 
entirely  without  the  state,  but  enters  the  state  for  the  purpose  of 
reporting,   receiving  instructions,   accounting,  etc.,  incidental  to 
his  duties  without  the  state,  shall  not  be  deemed  to  take  such 
employee  out  of  the  class  of  those  rendering  their  services  entirely 
without  the  state." 

These  two  sentences  in  subdivision  c,  article  265,  must  be  taken 
together  for  a  full  understanding  of  the  intent  of  the  statute. 
Thus  the  tax  on  the  income  of  a  nonresident  collector  for  a  New 


468          THE   STATE   COMPTROLLER'S   REGULATIONS 

York  furniture  house  making  collections  in  Connecticut  and 
receiving  instructions  from  the  home  office  in  New  York,  is  not 
deductible,  nor  should  there  be  a  deduction  of  a  tax  in  the  case 
of  a  nonresident  reporter  for  a  New  York  daily  newspaper,  the 
reporting  work  being  done  in  New  Jersey.  The  same  rule  may 
be  applied  to  a  nonresident  architect  designing  his  plans  at  home, 
even  though  the  sketches  were  completed  at  a  New  York  office. 
Attention  has  already  been  called  in  chapter  XXIV,  pages  194- 
198,  to  the  constitutional  questions  involved  in  this  form  of  taxa- 
tion, and  the  State  Comptroller  in  his  regulation  has  sought  as  far 
as  possible,  to  minimize  the  danger  of  taxing  income  beyond  the 
State's  jurisdiction.  (See  article  266.)  The  important  point 
to  be  considered  is  whether  the  work  in  New  York,  of  the  char- 
acter above  referred  to,  is  merely  incidental  to  the  services  ren- 
dered outside  the  State.  If  so,  the  income  has  been  earned  with- 
out the  State. 

Subdivision  d,  article  265,  covers  a  case  like  that  of  a  salaried 
buyer  or  sales  agent  located  in  New  York  and  employed  by  a  non- 
resident firm,  or  foreign  corporation  not  registered  in  New  York, 
the  income  of  the  employee  being  paid  from  outside  the  State. 
The  State  Comptroller  holds  such  persons  liable  for  the  tax  but 
he  is  unable  to  withhold  the  tax  for  there  is  no  withholding  agent 
in  the  State's  jurisdiction.  Unless  the  employee  has  property 
within  the  State,  it  is  doubtful  whether  the  tax  can  be  collected 
in  such  cases. 

Art.  266.   Deduction  in  the  Case  of  Apportionable  Income The 

basis  of  taxing  apportioiiable  income  is  treated  more  at  length 
in  the  next  chapter  dealing  with  the  nonresident  section.  The 
same  principles  of  apportionment  applicable  to  a  nonresident 
doing  business  on  his  own  account,  apply  to  a  nonresident 
employee.  Since  the  rule  of  apportionment  in  such  cases  is 
entirely  an  artificial  one  fixed  by  the  State  for  convenience  of 


THE    STATE    COMPTROLLER'S   REGULATIONS (CONT*!))        4-69 

administration,  it  will  probably  be  attacked  in  the  courts  in  cases 
where  the  State's  method  of  apportionment,  when  applied  to  the 
particular  facts  of  the  case  at  issue,  make  the  taxable  proportion 
unreasonable.  For  instance,  under  subdivision  a,  article  266 
revised,  a  salesman  receiving  a  salary  for  services  rendered  in 
and  out  of  the  State,  may  receive  a  sum  of  $50,000  a  year  for 
selling  $1,000,000  of  goods  in  and  out  of  the  State.  The  rule  of 
apportionment  under  subdivision  a,  article  266  in  this  case  is 
according  to  "  the  volume  of  business  transacted  within  and  with- 
out the  state  by  such  employee."  ILL  the  present  case  the  volume 
of  business  means  the  amount  of  sales,  yet  the  income  earned  by 
the  employer  may  be  greater  on  half  the  sales  made  in  the  State 
than  on  the  remaining  half  sold  without  the  state  so  that  the  volume 
of  sales  may  not  be  a  fair  proportion  of  income  earned.  It  may 
also  be  questioned  whether  the  rule  of  apportionment  by  time 
referred  to  is  a  reasonable  one  in  fixing  the  value  of  services  in 
the  case  of  certain  employees,  such  as  clerks,  bookkeepers,  labor- 
ers, etc.,  as  referred  to  in  article  266,  b.  Subdivision  c  offers  an 
alternative  for  the  difficulties  that  may  be  encountered  in  sub- 
divisions a  and  b  and  leaves  room  for  a  rule  which  may  afford 
a  more  reasonable  basis  of  apportionment  in  doubtful  cases. 
Retention  of  Residence  Certificate  for  Inspection.  Article 
267  provides  that  withholding  agents  shall  "  retain,  pre- 
serve and  keep  available  for  examination  and  inspection  by  the 
Comptroller,  or  his  authorized  representative,  all  residence  cer- 
tificates for  a  period  of  one  year  next  following  the  close  of  the 
calendar  year  for  which  such  certificates  shall  have  been  given." 
This  evidently  implies  an  examination  by  the  Comptroller, 
through  his  inspectors,  of  the  payrolls,  books  and  records  of  the 
taxpayer  and  by  "  taxpayer  "  may  be  included  the  withholding 
agent,  such  agent  to  be  deemed  the  representative  of  the  tax- 
payer. (See  section  373,  Tax  Law,  under  the  head  of  "Powers 
of  Comptroller)."  The  form  of  residence  certificate,  as  required 
by  law,  is  here  given  in  full : 


4r70          THE   STATE   COMPTROLLER'S   REGULATIONS (cONT'l>) 


THIS   CERTIFICATE   HAS   NO    EFFECT   ON    CITIZENSHIP   OR 


Form 

VOTING  RESIDENCE 


a    § 

s  a 


51 


CERTIFICATE    OF    TAXPAYER    CLAIMING    RESIDENCE    IN    THE 
STATE  OF  NEW  YORK 

(To  be  filed  with  withholding  agent  by  resident  of  New  York  State,  pur- 
suant to  section  366  of  the  Tax  Law,  for  the  purpose  of  claiming  the 
benefit  of  such  residence  for  income  tax  purposes.) 


To. 


(Withholding  agent) 


(Address) 

I  hereby  declare  that  I  am  a  resident  of  the  State  of  New  York;  that 
I  reside  at _ _ _ 

(Street  and  number)  (City,  town  or  village)  (County) 

N.  Y.,  that  I  have  no  definite  intention  as  to  when  (if  at  all)  I  will  establish 
my  home  without  the  State;  and  that  if  I  decide  to  establish  my  home 
without  the  State,  or  at  another  place  within  the  State,  I  will  promptly 
give  you  notice  of  that  fact  and  of  my  new  residence  address. 

(Signed) 


Revocation  and  Renewal  of  Residence  Certificates.;  Repayment  of 
Tax;  Return  of  Tax  Withheld.—  (Arts.  268,  269  and  270.)  The 
residence  certificates  under  article  267  are  effective  "for  the 
period  of  one  year  next  following  the  close  of  the  calendar  year 
for  which  such  certificate  shall  have  been  given."  This  evidently 
means  that  the  certificate  is  given  for  one  year  from  December  3  1, 
1919,  or  for  such  other  calendar  year  for  which  the  withholding 
applies.  The  status  of  residents  should  be  fixed  at  the  end  of 
the  calendar  year,  viz. :  December  31st,  for  purposes  of  with- 
holding and  otherwise,  at  the  end  of  the  taxable  period.  This 
is  true  of  taxable  liability  for  local  purposes  in  New  York  city 
in  the  assessment  of  real  and  personal  property.  Matter  of  Bab- 
cock,  115  N.  Y.  450,  and  under  the  Federal  Income  Tax  Law 
it  is  true  in  fixing  the  status  of  a  resident  for  the  purpose  of 
determining  the  right  to  the  personal  exemption.  (See  letter 
of  Roper,  Commissioner  of  Internal  Revenue,  dated  June  12, 


THE   STATE   COMPTROLLER'S   REGULATIONS  -     CONT^          471 


1919.)  Under  the  New  York  Law,  a  residence  once  established 
is  presumed  to  continue  until  a  taxpayer  changes  his  residence 
or  removes  from  the  State.  (Section  8,  Tax  Law.)  Residence, 
once  proved,  the  burden  of  proof  shifts  to  the  person  desiring  to 
establish  nonresidence.  Under  article  268,  the  employer  should 
be  notified  of  change  of  residence,  and  an  employer  having  reason- 
able grounds  for  believing  that  the  residence  has  been  changed 
may  revoke  the  certificate  after  notice  to  the  employee,  and  with- 
hold the  income.  This  "  change  of  residence  "  evidently  refers  to 
change  of  residence  without  the  State,  as  this  is  the  only  status  that 
could  affect  withholding  of  the  tax.  A  residence  certificate  once 
having  been  obtained,  there  does  not  seem  to  be  any  legal  liabil- 
ity of  the  employer  to  withold  the  tax,  unless  the  change  of 
residence  can  be  shown  to  have  been  brought  to  his  notice.  Indeed, 
in  the  case  of  employees  of  municipal  corporations  and  of  the 
State  of  New  York,  since  residence  is  generally  a  prerequisite  to 
public  employment,  the  Comptroller  has  ruled  that  it  will  bo 
assumed  that  such  employees  are  residents  of  the  State  unless 
the  head  of  the  department  in  which  he  is  employed  has  reason- 
able grounds  for  believing  him  to  be  a  nonresident.  No  certifi- 
cate of  residence  need  therefore  be  secured  in  such  cases  unless 
there  is  ground  for  a  belief  in  the  taxpayer's  nonresidence. 

If  a  nonresident  becomes  a  resident  at  any  time  before 
March  15th  of  the  year  following  the  tax  year  and  shall  file  a 
residence  certificate,  the  entire  amount  of  income  withheld  shall 
be  paid  to.  him. 

Verified  reports  of  withholding  on  or  before  March  isth  next  following  the 
calendar  year  for  which  the  deduction  of  tax  is  to  be  made. 

A  verified  report  of  all  sums  withheld  will  be  made  on 
Form  103,  accompanied  by  separate  reports;  one  for  each  indi- 
vidual on  Form  102.  Forms  102,  102-a  and  103  follow: 


472 


THE  STATE  COMPTROLLER^  REGULATIONS 


NEW  YORK  STATE 
INCOME  TAX 


FORM 
102 


REPORT  OF  TAX 
WITHHELD  AT  SOURCE 


Personal  Service  Income  of  $1000  or  More  Paid  to  a  Nonresident  During  the  Calendar 

Year  19 


See  Instructions  on  Form  102-A 


Do  Not  Fold  or  Mar  This  Card 


Name  in  full    To  Whom  Paid 


1.  Class  of  Compensation 


Address 


Name  in  full    By  Whom  Paid 
Address 


Is  Payee 
Married? 


If  Not,  Is  He  the 
Head  of  a  Family?. 


(Salaries,  wages,  commissions,  etc.) 

2.  Total  Paid  to  This 
Employee  During 
the  Calendar  Year .  $ 


3.  Paid      for      Services 

Within  the  State*..  $.. 

4.  Amount  Withheld $. 


/  1%  from  First  $10,000 
1  2%  from  All  Over  $10,000 


*  See  Article  266,  Income  Tax  Regu- 
lations for  Rule  of  Apportioning  Com- 
pensation for  Services  Performed  Partly 
Within  and  Partly  Without  the  State 


Form  102-A 


NEW  YORK  STATE  INCOME  TAX 
RETURN  OF  TAX  WITHHELD  AT  SOURCE 


INSTRUCTIONS  FOR  USE  OF  REPORT  OF  TAX  WITHHELD  —  FORM   102 

1.  For  the  purposes  of  the  withholding  at  the  source  provisions  of  the  law  the  status  of  non- 
resident attaches  to  every  person  receiving  personal  service  compensation,  who  has  not  filed  with 
the  withholding  agent  a  certificate  of  residence  on  Form  101. 

2.  The  tax  must  be  withheld  at  source  only  on  payments  of  salaries,  wages,  commissions  and 
other  fixed  and  determinable  annual  or  periodical  compensation  for  personal  services  rendered  by 
a  nonresident  of  $1000  or  more  during  the  calendar  year. 

3.  A  separate  report  on  Form  102  must  be  made  for  each  person  who  did  not  file  a  certificate 
of  residence.  Form  101,  and  received  compensation  for  services  rendered  within  the  State  of  $1000 
or  more  during  the  calendar  year. 

4.  No  report  or  withholding  is  required  if  the  amount  paid  for  services  within  the  State  is  less 
than  $1000. 

5.  Do  not  report  on  this  form  any  income  other  than  compensation  for  personal  services. 

6.  Where  services  are  rendered  by  a  nonresident  partly  within  and  partly  without  the  State, 
withholding  is  based  upon  the  amount  paid  for  services  rendered  within  the  State  as  determined 
by  article  266  of  the  income  tax  regulations. 

7.  All  reports  on  Form  102,  accompanied  by  return  on  Form  103,  must  be  filed  with  the  New 
York  State  Income  Tax  Bureau  on  or  before  March  15  following  the  calendar  year  for  which  the 
report  is  made.     The  tax  must  be  paid  at  the  time  of  filing  the  return. 


THE   STATE   COMPTROLLES   REGULATIONS 


473 


Form  103.—  NEW  YORK  STATE  INCOME  TAX 

RETURN  OF  TAX  WITHHELD  AT  SOURCE 
FOR  THE  CALENDAR  YEAR  19.  .. 

on  payments  of 
SALARIES,  WAGES,    COMMISSIONS  AND  OTHER 


Read  Instructions 
Carefully 

This  return  ac- 
companied by  in- 
dividual reports 
on  Form  102  must 
be  filed  with  the 
New  York  State 
Income  Tax 
Bureau  at  any  dis- 
trict office  thereof, 
on  or  before 
March  15  follow- 
ing the  calendar 
year  for  which 
this  return  is 
made.  The  tax 
must  be  paid  at 
the  time  of  filing 
the  return. 


FIXED  AND  DETERMINABLE  ANNUAL  OR  PERI- 
ODICAL COMPENSATION  FOR  PERSONAL 
SERVICES  OF  NONRESIDENTS  OF  $1,000  OR 
MORE  DURING  THE  CALENDAR  YEAR. 


WITHHOLDING  AGENT 


Name. 


Address. 


(Street  and  number  of  rural  route) 
(Post  office  and  state) 


Do  Not   Write  in 
This  Spare 


PAYMENT 


$ 

Examined  by 


Cashier's  Stamp 
No. 


SEE  INSTRUCTIONS  ON  REVERSE  SIDE   OF   THIS  SHEET 


State     f. ....  ,  County  of. ,  ss: 

I  swear  (or  affirm)  that  the  following  is  a  true  and  complete  return  of  all  payments  of  salaries, 
wages,  commissions,  and  other  fixed  or  determinable  annual  or  periodical  compensation  for  per- 
sonal services  of  $1,000  or  more  paid  during  the  calendar  year  19 by  the  above  withholding 

agent  for  which  a  certificate  of  residence  on  Form  101  has  not  been  filed.  Each  item  on  tnis 
return  is  evidenced  on  Form  102  which  is  transmitted  herewith,  showing  the  name  and  address 
of  the  person  to  whom  payment  was  made,  and  stating  the  amount  of  such  payment  and  the 
amount  of  the  tax  withheld. 

I  further  declare  that  the  aggregate  amount  of  taxes  withheld  is  $ 

Sworn  to  and  subscribed  before  me  this day  of ,  19 


(Signature) 


(Signature) 


Seal  not  required 


(Title) 


(Capacity  in  which  acting) 


474         THE   STATE   COMPTROLLER'S   REGULATIONS 


1.  Name  of  person  to  whom  compensation 
was  paid 

2.  Amount  on  which 
tax  was  withheld 

3.  Amount  withheld 

$               

$ 



$.  

$  

$               

$  

$  

$.  

$        

$    

$           

$         

$  

$  

$  

$  

$  

$  

$  

$  

Totals        

$ 

$ 

If  all  names  cannot  be  placed  on  this  sheet,  use  extra  sheets  of  same  size,  numbering  each  sheet* 


Form  103 


INSTRUCTIONS 


1.  For  the  purposes  of  the  withholding  at  the  source  provisions  of  the  law,  nonresident  status 
attaches  to  every  person  receiving  personal  service  compensation  who  has  not  filed  with  the  with- 
holding agent  a  certificate  of  residence.     (Form  101.) 

2.  Every   individual,   partnership,    corporation   or   other   organization,   in   whatever   capacity 
acting,  is  required  to  deduct  and  withhold  a  tax  of  one  per  cent  from  the  first  $10,000  and  two 
per  cent  from  all  over  $10,000  of  payments  for  salaries,  wages,  commissions,  gratuities,  emolu- 
ments, perquisites,  and  other  fixed  or  determinable  compensation  for  personal  services,  if  the 
amount  paid  or  credited  to  any  individual  is  $1,000  or  more  during  the  calendar  year,  unless  the 
person  to  whom  the  compensation  is  paid  files  a  certificate  of  residence  on  Form  101. 

3.  This  return  must  be  accompanied  by  a  report  on  Form  102  for  each  individual  to  whom  was 
paid  compensation  on  which  tax  was  withheld.     (See  Form  102  and  instruction  card  Form  102-A.) 

4.  No  report  or  withholding  is  required  with  respect  to  payments  to  any  individual  of  less  than 
$1,000  for  services  rendered  within  the  State. 

5.  The  payments  included  in  this  return  should  not  be  included  in  the  return  of  information 
on  Form  105. 

6.  This  return  must  be  filed  with  the  New  York  State  Income  Tax  Bureau  on  or  before  March 
15  following  the  calendar  year  during  which  the  payments  were  made  or  credited.     At  the  time 
this  return  is  filed  the  aggregate  amount  shown  thereby  to  have  been  deducted  and  withheld 
shall  be  paid. 


Information  at  the  Source. 

Returns  of  information,  as  distinguished  from  returns  of 
tax  withheld,  are  to  be  made  in  the  case  of  resident  taxpayers 
to  whom  under  subdivision  10,  section  350  of  the  Tax  Law 
"  interest,  rents,  salaries,  wages,  premiums,  annuities,  compensa- 


THE  STATE  COMPTROLLER'S  REGULATIONS (cONT'l))   475 

tions,  remunerations,  emoluments  or  other  fixed  or  determinable 
gains,  profits  and  income"  are  paid.  .  This  includes  not  only 
payments  to  the  salaried  or  wage-earning  classes,  who  are  resi- 
dents, but  to  the  landlords,  lessees,  mortgagees,  annuitants, 
cestuis  que  trusient,  wards,  heirs,  or  legatees. 

Interest  Coupons  Exempted —  Interest  coupons  payable  to  bearer 
are  specifically  exempted  from  returns  of  information  under  sub- 
division 2,  section  266. 

We  may  divide  the  payors,  or  those  who  must  file  information 
returns,  into  the  following  classes  (article  281)  : 

Who  Must  File  Information  Returns. 

1.  Municipal  corporations   and  'state   departments,    including 
the  disbursing  officers  of  such  corporations  and  departments. 

2.  Domestic  corporations  and  registered  foreign   corporations. 

3.  Unregistered  foreign  corporations. 

4.  Individuals,  partnerships,  associations. 

In  even-  case,  the  taxable  income  paid  must  be  $1,000  or  more. 
There  must  be  a  return  of  information  where  no  withholding  is 
required,  under  the  first  paragraph  of  section  366  of  the  Tax  Law, 
and  there  should  be  no  return  of  information  where  there  is  actual 
withholding  (articles  282,  283).  The  returns  of  withholding 
are  made  on  Forms  102  and  103  hereinbefore  referred  to  and 
set  forth.  Such  returns  for  1919  will  include  all  payments  made 
or  earned  during  the  year,  even  if  earned  before  the  passage 
of  the  act  (article  284),  the  law  being  retroactive.  Payments 
of  income  need  not  be  in  cash.  They  may  be  credited  as,  for 
example,  interest  or  salary  earned  and  credited,  but  not  paid. 
Each  payment  need  not  amount  to  $1,000  or  more,  nor  need  the 
payments  be  of  a  single  kind;  thus,  $300  in  commission,  $400 
in  interest  and  $300  for  personal  services  paid  to  one  individual 
will  be  sufficient  to  require  a  return  of  information  (article  285). 


476          THE   STATE   COMPTROLLER'S   REGULATIONS 

A  special  bulletin  to  the  heads  of   State  departments  relating 
to   withholding   and   information   at   the   source   is   given   below. 

Information  and  Withholding  in  the  Case  of  State  and  Municipal 
Employees —  Special  Bulletin  ~No.  2  and  Kegulation  No.  2,  relat- 
ing to  withholding  and  information  required  by  State  depart- 
ments, is  given  below  in  full. 

Special  Bulletin  No.  3  and  Regulation  No.  1  for  the  use  of 
fiscal  officers  of  municipalities  is  practically  a.  duplicate  of  the 
regulation  for  the  State  departments  and  is,  therefore,  not  pre- 
sented at  length. 

BULLETIN  No.  2 

STATE    OF    NEW    YORK 

OFFICE  OF  STATE  COMPTROLLER 

INCOME  TAX  BUREAU 

ALBANY 
To  THE  HEADS  OF  ALL  STATE  DEPARTMENTS: 

Your  attention  is  called  to  the  provisions  of  the  State  income  tax  (chapter 
627,  laws  of  1919)  relating  to  (a)  withholding  agents,  (b)  information  at 
source,  and  (c)  withholding  at  the  source  with  respect  to  salaries  and  wages 
paid  to  State  officers  and  employees.  (Tax  law,  section  350,  subdivision  10, 
and  section  366.) 

Put  simply,  the  law  requires  all  officers  and  employees  of  the  State  having 
the  receipt,  custody,  control,  disposal  or  payment  of  compensation  to  officers 
or  employees,  to  report  to  the  State  Comptroller  all  payments  of  personal 
service  compensation  of  $1,000  or  more  during  a  calendar  year  to  any  one 
individual  resident  of  the  State  of  New  York,  and  to  deduct  a  tax  from  the 
personal  service  compensation  of  every  nonresident  individual  who  receives 
$1,000  or  more  during  the  year,  and  to  pay  the  tax  so  deducted  to  the  State 
Comptroller. 

The  law  gives  the  State  Comptroller  the  power  to  prescribe  regulations  to 
enforce  these  provisions.  It  is  my  desire  to  assist  State  officers  in  the 
exercise  of  their  duties  under  the  personal  income  tax  law  and  to  impose  no 
requirement  not  absolutely  necessary  for  the  successful  administration  of 
the  law.  In  order  to  carry  out  the  provisions  with  respect  to  State  officers 
and  employees,  the  following  special  regulation  is  promulgated: 


THE   STATE   COMPTROLLER'S   REGULATIONS (CONT'D)        477 

SPECIAL    REGULATION    NUMBER   2 

Information  and  withholding  at  the  source  respecting  state  officers 
and  employees 

1.  In  view  of  the  fact  that  residence  within  the  State  of  New  York  is  gen- 
erally a  prerequisite  to  employment  by  the  State  or  any  of  its  departments 
or   institutions,  the  employment  of  non-residents  being  exceptional  in  each 
case,  it  will  be  assumed  that  every  State  officer  and  employee  is  a  resident  of 
the   State  of  New  York  unless  the  head  of  the  department  in  which  he  is 
employed  has  reasonable  grounds  for  believing  him  to  be  a  non-resident.     In 
such  a   case  the  head   of  the  department  or   institution   shall   request  such 
officer   or  employee  to   execute  a   certificate  of   residence    (Form   101)    if   a 
resident  of  the  State,  and  if  he  neglects  or  fails  to  do  so,  consider  him,  for 
the  purposes  of  the  income  tax  law,  a  non-resident,  and  deduct  and  withhold 
a  tax  as  provided  in  paragraph  3  hereof.     No  certificate  of  residence  need  be 
secured  in  other  cases  and  no  tax  deducted  and  withheld. 

2.  There  shall  be  attached  to,  or  indorsed  on,  every  payroll  presented  to 
the  State  Comptroller  for  audit,  or  to  the  treasurer  or  fiscal  officer  of  all  State 
departments  or  institutions  making  payments  of  salaries  and  compensations 
to  officers  and  employees,  a  certificate  to  be  signed  by  the  head  of  the  depart- 
ment, reading  as  follows : 

I  hereby  certify  that  to  the  best  of  my  knowledge,  information  and  belief, 
every  person  named  on  this  payroll,  receiving  compensation  of  $1,000  or  more 
per  annum,  is  a  resident  of  the  State  of  New  York,  except  the  following: 

(Here  list  the  names  of  those  employees  established  to  be  non -residents  in  the 
manner  provided  in  paragraph  one  above.) 


Signature 


Title 

3.  After  the  payrolls  have  been  audited  by  the  State  Comptroller,  the  State 
Treasurer  will  be  instructed  to  withhold  the  tax  on  all  payments  for  com- 
pensation to  those  persons  listed  on  the  payrolls  as  being  nonresidents.     No 
report  will  be  required  from  the  head  of  any  State  department  with  respect 
to  the  amount  so  deducted  and  withheld  by  the  State  Treasurer.    The  amount 
so  deducted  and  withheld  will  be  charged  to  the  apporpriation  out  of  which 
the  salaries  are  paid  in  the  same  manner  as  if  the  amounts  were  paid  to  the 
employee,  and  will  be  withdrawn  by  the  Comptroller  monthly  or   at  other 
stated  intervals. 

4.  The  head  of  each  State  department  shall  keep  and  maintain  a  record 
showing  the  amount  of  compensation  paid  during  each  calendar  year  to  every 


478          THE   STATE   COMPTROLLER^   REGULATIONS 

person  receiving  compensation  of  $1,000  or  more  during  the  calendar  year. 
As  soon  as  possible  after  January  1  of  each  year,  but  no  later  than  March 
15  of  each  year,  the  head  of  each  State  department  shall  file  with  the  State 
Comptroller  (Income  Tax  Bureau),  Albany,  N".  Y.,  a  return  of  information 
with  respect  to  every  person  from  whose  income  no  tax  was  deducted,  who  has 
received  $1,000  or  more  of  compensation  during  the  preceding  calendar  year. 
The  returns  shall  be  made  on  Form  105  and  shall  be  accompanied  by  a  veri- 
fied letter  of  transmittal  on  Form  106.  There  shall  be  reported  on  such 
forms  the  information  therein  called  for. 

5.  The  treasurers  of  all  State  departments  and  institutions  making  direct 
payments  of  salaries  and  other  compensation  to  officers  and  employees,  are 
required  to  deduct  and  withhold  a  tax  of  1  per  cent  on  the  first  $10,000  and 
2  per  cent  on  sums  in  excess  of  $10,000,  from  all  payments  of  compensation  to 
persons  determined  to  be  nonresidents  as  outlined  in  paragraph  one  hereof. 
In  all  cases  where  withholding  is  required,  the  treasurer  or  the  fiscal  officer 
of  the  department  or  institution  shall,  as  soon  as  possible  after  January  1 
of  each  year,  but  no  l-ater  than  March  15  of  each  year,  make  a  verified  return- 
to  the  State  Comptroller  (Income  Tax  Bureau),  Albany,  N.  Y.,  on  Form  103, 
accompanied  by  separate  reports,  one  for  each  individual,  on  Form  102,  show- 
ing the  compensation  paid  and  the  amount  of  tax  withheld  for  the  preceding 
calendar  year.     The  aggregate  amount  shown  to  have  been  withheld  on  Form 
103  shall  accompany  the  return  and  shall  be  charged  to  the  appropriation  out 
of  which  the  compensation  was  paid..     Furthermore,  he  shall  make  a  return 
of  information  as  prescribed  in  paragraph  four  in  respect  of  payments  where 
there  has  been  no  actual  withholding  as  required  by  paragraph  three  of  this 
ruling. 

6.  The  provisions  of  the  Comptroller's  regulations  relating  to  information 
at  the  source  with  respect  to  reporting  payments  of  income  other  than  salaries 
on  Forms  105  and  106  apply  to  the  heads  of  State  departments  in  the  same 
manner  as  to  all  other  withholding  agents.     Reports  will  be  required  for  all 
payments  to  individuals  of  rent  or  other  fixed  and  deter minable  taxable  in- 
come of  $1,000  or  more  during  the  calendar  year.     See  articles  281  to  290 
inclusive  of  Comptroller's  regulations. 


V 

November  18,  1919. 


THE   STATE    COMPTROLLER'S   REGULATIONS (CONT'D)        479 

Returns  by  Contractors  and  Subcontractors —  (Art.  286. )  Where 
work  is  let  by  contract,  which  in  turn  is  subcontracted  and  the 
subcontractor  keeps  a  complete  record  of  the  payment  of  wages, 
salaries,  etc.,  the  duty  devolves  upon  him  to  make  the  return. 
So  also  with  branch  offices,  when  complete  returns  are  kept  by 
them  instead  of  by  the  main  office.  Where  the  employee  is  moved 
from  one  job  to  another  by  different  contractors  or  subcontractors, 
so  that  it  is  difficult  to  obtain  a  complete  record  of  his  annual 
income,  the  average  monthly  payment  for  two  representative 
months  on  the  basis  of  $1,000  per  year  or  more,  may  be  taken 
for  the  purpose  of  making  a  return  of  information  (article  286). 

Article  287  only  requires  information  returns  from  domestic 
or  foreign  registered  corporations,  of  interest  payments  on  regis- 
tered bonds,  when  the  interest  aggregates  $1,000  or  over  and 
when  the  address  of  the  registered  payee  is  knoivn.  Nonresident 
payees  are  exempt  from  a  tax  on  income  of  this  class  under 
section  359  of  the  Tax  Law.  By  a  "  registered  foreign  corpora- 
tion," under  article  287,  is  meant  a  foreign  corporation  that  has 
filed  a  certificate  with  the  Secretary  of  State  permitting  it  to  do 
business  in  the  State,  under  section  15  of  the  General  Corpora- 
tion Law.  Presumptively,  unregistered  foreign  corporations  are 
not  doing  business  in  the  State  and  their  omission  from  those 
required  to  file  information  returns  may  be  due,  therefore,  to 
the  inability  of  the  State  to  claim  jurisdiction  over  this  class 
of  corporations.  Fiscal  officers  of  the  State  of  New  York  and 
of  municipal  corporations  are  not  required  to  make  information 
returns  under  article  287  because  payments  of  interest  on  State 
bonds  and  municipal  securities  of  the  cities  of  the  State  are 
exempt  from  tax.  For  the  reason  that  securities  issued  by  other 
divisions  of  the  State  are  exempt  from  income  tax,  information 
returns  need  not  be  made  by  fiscal  officers  of  counties  and  villages 
of  the  State  of  New  York.  Other  States  and  foreign  governments 


480          THE   STATE    COMPTROLLER'S   REGULATIONS 

are  not  required  to  make  information  returns  of  such  interest 
under  article  287,  for  the  same  reasons  as  apply  to  unregistered 
foreign  corporations. 

Return  of  Information  as  to  Payment  of  Dividends. — Article  288 
a  special  regulation  calling  for  information  returns,  in  the 
case  of  dividends  distributed  to  resident  stockholders,  applies  to 
domestic  or  registered  foreign  corporations.  This  regulation 
seems  to  follow  article  1074  of  Regulations  45  of  the  Treasury 
Department  of  the  United  States.  It  was  evidently  not  intended 
to  place  upon  corporations  generally  the  burden  of  making  infor- 
mation returns  for  dividends  paid  to  stockholders,  but  to  call 
upon  them  in  case  it  was  specially  required.  Sufficient  informa- 
tion would  be  gathered  from  the  individual  taxpayer's  own  return 
and  his  reconciliation  of  Federal  income  with  State  income, 
shown  by  his  State  return. 

Art.  289.  Payments  of  Which  No  Return  of  Information  is 
Required —  Article  289  provides  that  the  following  payments  need 
not  be  reported  on  returns  of  information : 

a.  Dividends.      (See  article  288.) 

b.  Interest  coupons  payable  to  bearer.     (See  article  287.) 

c.  Income  exempt  from  taxation  under  section  359,  subdivi- 
sion 2,  of  the  Tax  Law. 

d.  Bills  for  merchandise,  telegrams,  telephone,  freight,  storage 
and  similar  charges. 

e.  Payments  to  employees  for  board  and  lodging  while  traveling 
in  the  course  of  their  employment. 

f.  Annuities  representing  the  return  of  capital. 

g.  Payments  of  rent  made  to  real  estate  agents  (but  the  agent 
must  report  payments  to  landlord  if  they  equal  or  exceed  $1,000 
annually). 

h.  To  nonresident  employees  for  services  rendered  entirely 
without  the  State. 


THE    STATE    COMPTROLLER'S   REGULATIONS (cONT'p)        481 


i.  To  nonresidents,  of  annuities,  including  pensions,  interest 
on  bank  deposits,  interest  on  bonds  or  other  interest-bearing 
obligations  or  dividends. 

j.  Fees  for  professional  services,  except  retainers  on  an  annual 
or  periodical  basis. 

k.  To  corporations,  to  partnerships  and  fiduciaries,  and  dis- 
tributions by  partnerships  to  partners  and  by  fiduciaries  to 
beneficiaries. 

Forms  of  Information  Returns — The  following  Forms  105, 
105-a  and  106  are  required  in  cases  of  information  at  the  source. 


NEW  YORK  STATE 
INCOME  TAX 

Report  of  Income  of  $1000  or  More  Paid  During  the  Calendar  Year    19 


RETURN  OF  INFORMATION 
F(??5M  AT  SOURCE 


See  Instructions  on  Form  105-A 


Do  Not  Fold  or  Mar  This  Card 


Name  in  full  TO  WHOM  PAID 

Kind  of  Income  Paid 

Amount 

Salaries,  Wages,  Fees  : 
Commissions,  Etc  .  .  . 

Rent  
Interest  on  Notes, 
Mortgages,  Etc  

Interest  on 
Registered  Bonds  .... 

$ 

Address 

$ 

$  

Name  in  full    BY  WHOM  PAID 

$  

Interest  on 
Bank  Deposits  
Premiums  and 
Annuities  

$  

Address 

$ 

$  

Is  Payee                    If  Not,  Is  He  the 
Married?  Head  of  a  Family?  

On  the  blank  line  above,  enter  the 
kind  and  amount  of  any  other  in- 
come except  as  noted  on  instructions. 

482 


THE   STATE   COMPTROLLER'S   REGULATIONS (cONT?D) 


Form  105-A     11-11-19-45.000  (5-3521) 

NEW  YORK  STATE  INCOME  TAX 
RETURN  OF  INFORMATION  AT  SOURCE 


INSTRUCTIONS  FOR  USE  ON  RETURN  OF  INFORMATION  —  FORM   105 

1.  A  separate  return  on  Form  105  must  be  made  for  each  individual  taxpayer  to  whom  any 
taxable  income  aggregating  $1,000  or  more  was  paid  during  the  calendar  year. 

2.  These  returns  must  be  forwarded  with  summary  and  letter  of  transmittal  on  Form  106  to 
the  State  Comptroller  (Income  Tax  Bureau),  Albany,  N.  Y.,  on  or  before  March  15  next  following 
the  calendar  year  for  which  the  return  is  made. 

3.  Returns  of  information  are  not  required  of  the  following  classes  of  payments: 


(h)  To  nonresident  employees,  for  services 
rendered  entirely  without  the  State. 

(i)  To  nonresidents,  of  annuities  including 
pensions,  interest  on  bank  deposits,  interest 
on  bonds,  or  other  interest-bearing  obligations. 

(j)  Fees  for  professional  services  except  re- 
tainers on  an  annual  or  periodical  basis. 

(k)  To  corporations,  to  partnerships  and 
fiduciaries;  and  distributions  by  partnerships 
to  partners  and  by  fiduciaries  to  beneficiaries. 


(a)  Dividends.  , 

(b)  Interest  coupons  payable  to  bearer. 

(c)  Income   exempt   from    taxation   under 
§  350,  subdivision  2  of  the  Tax  Law. 

(d)  Bills  paid  for  merchandise,  telegrams, 
telephone,  freight,  storage  and  similar  charges. 

(e)  To  employees  for  board   and  lodging 
while  traveling  in  the  course  of  their  employ- 
ment. 

(f)  Annuities,   representing   the   return   of 
capital. 

(g)  Of  rent  made  to  real  estate  agents  (but 
the    agent    must   report    payments    to     the 
landlord    if    they    equal    or    exceed    $1,000 
annually.) 


Form  106.     11-11-19-45,000  (5-3523) 

NEW  YORK  STATE  INCOME  TAX 

ANNUAL  SUMMARY  AND  LETTER  OF  TRANSMITTAL 
RETURN  OF  INFORMATION  AT  THE  SOURCE 

FOR  THE  CALENDAR  YEAR   19 

of  Payments  of 


Interest,    rent, 
Ra»d  instructions          remunerations, 
carefully                  and  income  of 

salaries,    wages,    premiums,    annuities,    compensations, 
emoluments,  or  other  fixed  or  determinable  gains,  profits 
$1,000  or  more  during  the  calendar  year. 

This  summary  and  let- 
ter   of    transmittal    ac- 
companied      by        the 
returns    on    Form    105, 
must  be  filed  with  the 
State  Comptroller,  (In- 
come     Tax      Bureau), 
Albany,    N.   Y.,    on    or 
before    March    15    fol- 
lowing     the      calendar 
year     for     which     this 
return  is  made. 

Name 

Do    not    write    in 
this  space 

(Person,  Firm,  Corporation,  Organization,  etc., 
making  payments) 

Address                                                    

Receiving  stamp 
No  

(Street  and  number  or  rural  route) 

(Post  office  and  state) 

Number  of  returns  on  Form  105. 

Total  amount  of  payments 
reported. 

$  

Examined  by 

THE  STATE  COMPTROLLER'S  REGULATIONS  -  (CONT'D)   483 


INSTRUCTIONS 

1.  Every  individual,  corporation  or  other  organization,  in  whatever  capacity  acting,  making 
payment  to  an  individual  of  taxable  income,  except  as  shown  below,  of  $1,000  or  more  during 
the  calendar  year,  must  make  a  return  of  information  thereon  on  Form  105  to  the  State  Comp- 
troller on  or  before  March  15  following  the  calendar  year  during  which  payments  were  made  or 
credited. 

2.  This  form  must  be  accompanied  by  returns  on  Form  105  showing  in  each  case  the  name 
and  business  address  of  the  person  or  organization  by  whom  the  payments  were  made,  and  the 
'name  and  home  address  of  the  person  to  whom  the  payments  were  made,  the  kind  of  income  and 
the  amount. 

3.  Returns  of  information  are  not  required  of  the  following  classes  of  payments: 

(a)  Dividends. 

(b)  Interest  coupons  payable  to  bearer. 

(c)  Income  exempt  from  taxation  under  section  359,  subdivision  2  of  the  Tax  Law. 

(d)  Bills  paid  for  merchandise,  telegrams,  telephone,  freight,  storage  and  similar  charges. 

(e)  To    employees    for    board    and    lodging    while    traveling    in    the    course    of    their 

employment. 

(f)  Annuities  representing  the  return  of  capital. 

(g)  Of  rent,  made  to  real  estate  agents  (but  the  agent  must  report  payments  to  the 

landlord  if  they  equal  or  exceed  $1,000  annually). 

(h)  To  nonresident  employees,  for  services  rendered  entirely  without  the  State. 
(i)    To  nonresidents,  of  annuities,  including  pensions,  interest  on  bank  deposits,  interest 

on  bonds,  or  other  interest-bearing  obligations  or  dividends. 

(j)    Fees  for  professional  services,  except  retainers  on  an  annual  or  periodical  basis. 
(k)  To  corporations,  to  partnerships  and  fiduciaries,  and  distributions  by  partnerships 

to  partners  and  by  fiduciaries  to  beneficiaries. 

State  of  _______  ................  ...........  ............  ........  County  of  ....................  ......................  -  .................  ss.: 

I  swear  (or  affirm)  that  the  foregoing  and  the  accompanying  returns  constitute  a  true  and 
complete  statement  of  all  payments  of  income  as  described  on  this  form,  made  by  the  person  or 
organization  named  at  the  head  of  this  form  during  the  calendar  year  19  ......... 

Sworn  to  and  subscribed  before  me  this  .......... 

day  of  .......  _  .......................................  19  ........ 

(Signature) 

(Signature)  (Capacity  in  which  acting) 


(Title)  (State  address  of  person  signing  if  different 

from  that  given  at  head  of  return) 


CHAPTER  XXXVII 

THE  COMPTROLLERS  REGULATIONS  (CONTINUED) 

Nonresident  Section —  The  general  principles  governing  the 
taxation  of  nonresidents  for  State  income  tax  purposes,  "  resi- 
dence "  and  nonresident  estates  and  trusts  have  been  set  forth  in 
Chapters  XXIV,  XXV  and  XXVIII.  Articles  401  and  subse- 
quent provisions  of  the  nonresident  section  contain  the  State 
Comptroller's  rules-  denning  gross  income,  deductions  allowed, 
and  the  method  of  apportionment  of  nonresidents'  income  derived 
from  sources  within  and  without  the  State.  The  application  of 
some  of  these  regulations  will  depend  to  some  extent  upon  the 
cases  now  pending  in  the  United  States  Supreme  Court  herein- 
before referred  to,  in  which  the  right  of  the  State  to  tax  a  non- 
resident's income  has  been  made  an  issue. 

The  taxation  of  nonresidents  under  the  Xew  York  Personal 
Income  Tax  Law  may  be  divided  into  three  parts : 

1.  Taxation  of  a  nonresident  not  engaged  in  business  or 
occupation,  on  his  own  account,  upon  income  derived  from 
personal  services  in  the  State,  such  as  salary,  wages,  or  earn- 
ings, paid  on  a  weekly,  monthly  or  periodical  basis. 

2.  Taxation  of  a  nonresident  whose  income  is  derived  from 
personal  or  business  service,  the  earnings  of  which  may  be 
ascribed  to  the  activities  of  the  taxpayer,  and  in  which  the 
employment  of  capital  is  only  incidental;  or  in  which  mer- 
chandizing or  trading  is  done  for  the  account  of  others.     This 
will  include  auction,  agency,  brokerage  or  commission  busi- 
ness strictly  on  the  basis  of  commission  for  personal  services. 


THE   STATE   COMPTROLLER'S   REGULATIONS  -      CONT'D          485 


It  will  also  include  professional  occupations  carried  on  for 
one's  own  account,  such  as  that  of  a  lawyer,  architect,  engi- 
neer, physician,  editor,  etc.  Under  the  head  of  business 
service  may  be  included  income  from  transportation,  laundry, 
hotel,  restaurant  and  businesses  of  this  character,  which, 
while  not  merchandizing  or  manufacturing,  involve  the 
employment  of  more  or  less  capital. 

3.  The  third  classification  under  which  nonresidents  are 
taxed  may  be  termed  the  mercantile  and  manufacturing  class, 
involving  the  manufacture  or  purchase  and  sale,  of  property. 
It  also  includes  those  who  derive  income  from  real  estate  as 
well  as  those  who  deal  in  securities  as  a  business,  from  which 
they  either  derive  a  profit  or  a  commission  in  the  purchase 
and  sale  thereof. 

Pensions  of  Nonresidents  Not  Taxable  —  The  State  Comptroller 
has  ruled  that  income  in  the  form  of  a  pension  received  in  the 
case  of  a  nonresident  employee  is  not  taxable  (see  article  413). 
The  evident  basis  for  this  is  that  the  pensioner  is  not  engaged  in 
any  profession  or  occupation  in  the  State,  nor  does  he  derive  any 
income  from  capital  employed  here,  and  that  the  pension  is  in 
the  nature  of  an  annuity  which  is  expressly  exempted  by  sub- 
division 3,  section  359.  If  the  recipient  is  a  resident,  such 
pension  will  be  regarded  as  taxable  income,  except  in  the  case 
of  a  teacher's  pension  in  New  York  City,  which  is  exempt  from 
tax  under  section  1092-w  of  the  New  York  charter  (see  article 
41  of  regulations  for  status  of  resident  pensions). 

Nonresident  Defined  —  Under  the  section  entitled  "  Withhold- 
ing," a  certificate  is  required  from  residents  in  all  cases  where 
without  it  there  would  be  a  withholding  of  tax  on  income  derived 
from  salaries.  In  such  instances  the  status  of  nonresidents  is 
determined  bv  the  absence  of  these  certificates.  It  has  also  been 


486          THE   STATE   COMPTROLLER'S   REGULATIONS (cONT'l>) 

said  that  the  status  of  residents,  or  nonresidents,  becomes  estab- 
lished or  fixed  at  the  end  of  the  taxable  period  when  the  income 
is  earned,  or  at  the  end  of  the  calendar  year.  This  corresponds 
to  the  determination  of  status  for  purposes  of  local  taxation 
(Matter  of  Babcock,  115  K  Y.  450)  which  is  also  fixed  at  the 
end  of  the  assessment  period.  Likewise  do  the  Federal  require- 
ments fix  the  end  of  the  taxable  period,  or  the  end  of  the  calendar 
year,  as  the  time  at  which  the  taxable  status  of  residents  or  non- 
residents shall  be  determined. 

Income  in  Case  of  Nonresidents —  Article  414  provides  that 
gross  income,  in  case  of  a  nonresident,  shall  be  determined  in  the 
same  manner  as  in  the  case  of  a  resident.  The  gross  income  as 
well  as  the  net  income  of  a  resident  is  governed  by  the  provisions 
of  the  Income  Tax  Law  (sec.  353  to  363).  In  the  case  of 
a  nonresident  entirely  engaged  in  business  in  the  State  deriving  all 
his  income  from  property  or  business  located  in  the  State,  the 
computation  of  net  income  would  be  reached  in  substantially  the 
same  manner  as  in  the  case  of  a  resident,  with  the  exception 
of  the  personal  exemption,  and,  with  the  exception  of  income 
received  in  the  form  of  annuities,  interest  on  bank  deposits, 
interest  on  bonds,  notes,  or  other  interest-bearing  obligations  or 
dividends  referred  to  in  subdivision  3,  section  359.  It  is  in  the 
case  of  a  nonresident  who  is  doing  business  within  and  without 
the  State  that  the  question  arises,  first  as  to  what  shall  be  deemed 
income  within  the  State,  and,  second,  what  shall  be  allowed  to 
a  nonresident  in  the  form  of  deductions. 

Definition    of    "  Business    Carried    on    Within    the    State."  - 
Article  415  of  the  regulations  defines  what  is  meant  by  the  words 
"  Business,  trade,  profession  or  occupation  carried  on  within  the 
State,"  as  used  in  section  351  of  the  Tax  Law.      This  definition 
has  reference  to  a  nonresident  engaged  in  business  on  his  own 


THE   STATE   COMPTROLLER'S   REGULATIONS  --     CONT'D          487 


account  rather  than  to  a  salaried  employee  working  for  others, 
and  is  given  below  in  full: 

"A  business,  trade,  profession  or  occupation  (as  distinguished  from 
personal  service  as  employee)  is  carried  on  within  the  State  by  a  non- 
resident, when  he  occupies,  has,  maintains  or  operates  desk  room,  an 
office,  a  shop,  a  store,  a  warehouse,  a  factory,  an  agency  or  other  place 
where  his  affairs  are  systematically  and  regularly  carried  on  notwith- 
standing the  occasional  consummation  of  isolated  transactions  without  the 
State.  Business  is  being  carried  on  if  it  is  here  with  a  fair  measure  of 
permanency  and  continuity.  Its  regularity  or  continuity  need  not  be  for 
a  long  period;  the  life  of  the  business  is  not  a  material  factor." 

The  construction  to  be  placed  on  this  regulation  is  predicated 
on  the  meaning  of  section  351  of  the  Tax  Law,  which,  in  so  far 
as  it  seeks  to  tax  nonresidents,  imposes  such  tax  on  the  income 
"from  every  business,  trade,  profession  or  occupation  carried  on 
in  this  State  by  natural  persons  not  residents  of  the  State."  It 
therefore  becomes  essential  to  note  what  is  meant  by  these  words 
as  applied  to  "  natural  persons  not  residents  of  the  State." 

The  courts  of  this  State  and  the  Federal  courts  have  repeatedly 
defined  what  was  meant  by  "  doing  business/7  "  transacting 
business.'7  Comparatively  few  of  these  cases  had  reference  to 
"natural  persons  not  residents  of  the  State.77  Most  of  these  cases 
arose  out  of: 

1.  Liability  of  foreign  corporations  to  taxation. 

2.  Maintenance  of  actions  by  foreign  corporations. 

3.  Jurisdiction  over  foreign  corporations  in  the  service  of 
process. 

Each  of  these  classes  of  cases  required  a  different  state  of  facts 
upon  which  to  determine  jurisdiction. 

For  the  purpose  of  holding  a  nonresident  taxable  on  personal 
property,  he  should  not  only  be  engaged  in  business  in  the  State, 
but  capital  must  be  employed,  and  it  has  been  held  even  where  a 
foreign  corporation  has  been  authorized  to  do  business  in  the 


488          THE   STATE    COMPTROLLER'S   REGULATIONS (CONT?D) 

State  and  has  an  office  here  for  the  purpose  of  holding  directors' 
meetings  and  paying  dividends,  that  this  did  not  constitute  "  doing 
business  "  in  the  State  under  section  7  of  the  Tax  Law.  (People 
ex  rel.  Dives  Pelican  Co.  v.  Feitner,  77  App.  Div.  190.) 

For  State  tax  purposes,  it  has  also  been  held  that  a  foreign  cor- 
poration must  employ  capital  within  the  State,  as  well  as  do  busi- 
ness in  the  State,  and  it  was  decided  in  this  connection  that  where 
a  foreign  corporation  solicited  orders  through  agents  in  the  State, 
which  were  filled  from  the  factory  at  the  home  office  without  the 
State,  even  though  it  leased  offices  and  kept  samples  and  a  bank 
account  in  Xew  York  State^  it  was  not  taxable  here.  (People 
ex  rel.  Washington  Mills  v.  Roberts,  8  App.  Div.  201.) 

The  new  franchise  tax  law  (article  9-a),  taxing  corporations  on 
their  net  income  as  returned  to  the  Federal  government,  does  not 
require  that  capital  be  employed  in  order  that  such  corporations 
may  be  held  liable.  Personal  service  corporations  who  may  or 
may  not  employ  capital,  are  taxable  under  article  9-a  upon  their 
net  income  earned  within  the  Slate,  based  on  an  allocation  or 
apportionment  of  services  or  tangible  property  within  and  without 
the  State.  Such  corporations,  however,  must  file  a  certificate 
under  section  15  of  the  G-eneral  Corporation  Law,  before  they  are 
permitted  to  do  business  within  the  State.  Otherwise,  they  will 
be  unable  to  sue  upon  any  contract  rights  arising  out  of  business 
done  in  the  State.  The  new  Personal  Income  Tax  Law  goes  a 
step  further  than  either  the  requirements  for  jurisdiction  for  local 
tax  purposes  in  the  assessment  of  personal  property  (section  7 
of  the  Tax  Law)  or  the  franchise  tax  based  011  net  income 
(article  9-a).  No  capital  need  be  employed,  no  certificate  need 
be  obtained  to  do  business  in  the  State,  and  there  is  no  criterion 
or  guide  as  to  the  number  of  transactions  or  amount  or  volume  of 
business  done,  which  will  show  that  the  person  is  engaged  in  a 
continuous  business,  nor  is  there  any  statement  in  the  law,  except 


489 

regulation  417,  that  such  tax  may  not  be  imposed  on  income 
from  interstate  business,  or  the  income  from  business  temporarily 
or  transiently  within  the  State. 

The  language  of  article  415  of  the  regulations  is  largely  taken 
from  Tuuza  v.  Susquehanna  Coal  Co.,  in  which  the  question  arose 
as  to  what  facts  were  sufficient  to  constitute  jurisdiction  for  service 
of  process  on  a  foreign  corporation  not  transacting  business  in  the 
State,  within  the  meaning  of  section  15  of  the  General  Corpora- 
tion Law.  The  court  held  in  that  case  that  while  the  nonresident 
might  not  be  within  the  'State  for  the  purpose  of  the  General 
Corporation  Law,  it  still  might  be  amenable  to  the  service  of 
process.  The  court  used  this  language,  220  N.  Y.  267 : 

"  But  activities  insufficient  to  make  out  the  transaction  of  business, 
within  the  meaning  of  those  statutes  may  yet  be  sufficient  to  bring  the 
corporation  within  the  state  so  as  to  render  it  amenable  to  process  (Inter- 
national Text  Book  Co.  v.  Tone,  decided  herewith  (220  N.  Y.  313).  In 
construing  statutes  which  license  foreign  corporations  to  do  business 
within  our  borders,  we  are  to  avoid  unlawful  interference  by  the  state 
with  interstate  commerce.  The  question  in  such  case  is  not  merely 
whether  the  corporation  is  here,  but  whether  its  activities  are  so  related 
to  interstate  commerce  that  it  may,  by  a  denial  of  a  license,  be  prevented 
from  being  here  (International  Text  Book  Co.  v.  Pigg,  217  U.  S.  91). 
*  *  *  But  the  problem  which  now  faces  us  is  a  different  one.  *  *  * 
We  are  to  say  not  whether  the  business  is  such  that  the  corporation  may 
be  prevented  from  being  here,  but  whether  its  business  is  such  that  it  is 
here.  If,  in  fact,  it  is  here,  if  it  is  here,  not  occasionally  or  casually,  but 
with  a  fair  measure  of  permanence  or  continuity,  then,  whether  its 
business  is  interstate  or  local,  it  is  within  the  jurisdiction  of  our  courts 
(International  Harvester  Co.  v.  Kentucky,  supra,  at  p.  587). 

Elsewhere,  at  page  266,  the  court  said: 

"  Yet  because  their  activities  were  systematic  and  regular,  the  corpora- 
tion was  held  to  have  been  brought  within  Kentucky  and  therefore,  to  be 
subject  to  the  process  of  Kentucky  courts." 

It  will  be  noticed  that  in  this  case  the  court  used  the  language 
which  is  now  contained  in  the  regulation,  but  that  it  makes  a 


distinction  between  jurisdiction  which  enables  process  to  be 
served  on  a  nonresident  defendant  and  jurisdiction  required  for 
tax  purposes. 

In  International  Text  Book  Co.  v.  Tone,  supra,  it  was  held 
that  a  foreign  corporation  maintaining  no  office  in  the  State,  but 
employing  division  superintendents  and  assistants  with  an  agency 
in  New  York  City,  soliciting  orders  and  fulfilling  its  contracts 
by  transmitting  information  through  the  mails,  was  doing 
nothing  in  New  York  except  in  furtherance  of  interstate  com- 
merce, and  cannot  be  subjected  to  a  license  tax  by  reason  thereof. 
The  court  said  here,  page  318: 

"  Business  may  be  sufficient  to  subject  the  foreign  corporation  that  does 
it  to  the  service  of  process,  and  yet  insufficient  to  require  it  to  take  out  a 
license.  In  Tauza  v.  Susquehana  Coal  Co.,  (220  N.  Y.  259)  decided  here- 
with, this  distinction  is  emphasized.  *  *  *  We  have  steadily  upheld 
the  right  of  foreign  corporations,  without  the  aid  of  any  license,  to 
engage  in  activities  incidental  to  commerce  between  the  states." 

Corporation  Status  Differs  from  Individual  Taxpayer —  Attention 
has  been  called  to  the  franchise  tax  on  foreign  corporations,  based 
on  net  income  derived  from  doing  business  in  the  State,  but 
incidental  to  such  business,  there  must  be  the  authority  to  do 
such  business,  and  the  maintaining  of  a  place  of  business.  The 
maintaining  of  such  business  may  be  evidenced  by  "  a 'desk  room, 
an  office,  a  shop,  a  store,  a  warehouse,  a  factory,  an  agency,  or 
other  place  where  its  affairs  are  systematically  or  regularly 
carried  on." 

A  corporation  differs  from  an  individual  citizen  because  it 
is  in  possession  of  a  franchise,  and  to  exercise  the  rights  under 
that  franchise  within  the  State,  it  must  obtain  a  certificate  from 
the  Secretary  of  State.  No  such  limitations  apply  to  the  indi- 
vidual nonresident.  He  carries  his  franchise  "  under  his  hat," 
so  to  speak,  and  he  need  not  maintain  any  regular  place  of  busi- 
ness or  even  maintain  a  desk  room. 


)        491 

The  right  of  a  citizen  to  come  and  go  from  one  State  to 
another  is  not  limited  like  that  of  a  foreign  corporation  and  he 
may  transact  business  in  the  State  while  he  is  coming  and  going. 

How  far  the  Federal  courts  will  go  to  uphold  the  tax  on  net 
income  imposed  by  a  State  on  a  nonresident  individual  and 
derived  from  interstate  commerce,  in  whole  or  in  part,  it  is 
impossible  to  predict.  It  was  held  in  U,  S.  Glue  Co.  v.  Town  of 
Oik  Creek,  247  U.  S.  321,  that  such  a  tax  may  be  imposed  as  an 
income  on  a  domestic  corporation,  even  if  the  net  income  is 
derived  from  interstate  commerce,  provided  the  method  of  appor- 
tioning the  net  income  earned  within  and  without  the  State  was 
a  reasonable  one.  Whether  the  court  will  apply  the  same  reason- 
ing to  a  foreign  corporation  and  then  again  to  a  nonresident 
individual  is  another  question. 

Sales  of  Stocks,  Bonds  and  Other  Securities —  (Art.  416.)  We 
have  seen  that  the  tax  imposed  on  income  from  securities  owned 
by  a  nonresident  is  not  taxable  because  so  expressly  provided  in 
section  359,  subdivision  3.  The  underlying  reason  for  this 
exemption  was  not  to  discourage  the  investment  of  capital  in 
stocks  and  securities  in  domestic  corporations  which  otherwise 
might  be  diverted  to  other  States. 

There  is  no  express  provision  in  the  statute  exempting  profits 
arising  from  sale  of  stocks,  bonds  and  securities  belonging  to 
nonresidents.  On  the  other  hand,  there  is  an  express  provision 
for  the  taxation  of  such  profits  in  the  hands  of  a  resident 
(sections  353,  354,  355,  Tax  Law).  A  resident,  of  course,  is 
taxed  on  income  from  all  sources.  Aside  from  the  reason  men- 
tioned for  expressly  exempting  income  from  securities  belonging 
to  a  nonresident,  the  basis  for  the  Comptroller's  regulation  which 
is  hereinafter  quoted  in  full,  may  be  that  in  the  case  of  a 
nonresident,  the  sale  is  necessarily  brought  about  through  the 
agency  of  interstate  commerce  either  by  the  government 
4 


4:92          THE   STATE    COMPTROLLER'S   REGULATIONS 

mails  or  railroads  or  express  companies  as  the  demium  through 
which  the  exchange  is  effected.  It  may  also  be  said  that  the 
source  of  this  income  is  not  derived  from  property  within  the 
State,  since  the  property  is  of  an  intangible  character.  The 
Comptroller's  regulation  as  to  the  sale  of  stocks  is  as  follows: 

Sale  of  Stocks,  Bonds  and  Other  Securities.— Art.  416.  Gains  and 
profits  of  a  nonresident  from  the  sale,  exchange  or  other  disposition  of 
stocks,  bonds  and  other  securities  are  not  taxable  and  should  not  be 
included  in  gross  income,  except  to  the  extent  to  which  the  same  shall  be  a 
part  of  the  income  from  a  business  carried  on  in  the  state  of  New  York, 
even  though  the  sale  or  other  disposition  thereof  may  have  been  made 
within  the  state  of  New  York  or  consummated  on  the  exchange  located 
within  such  state.  Likewise,  losses  sustained  from  the  sale,  exchange  or 
or  other  disposition  of  stocks,  bonds  and  other  securities  under  like  con- 
ditions, are  not  deductible,  except  to  the  extent  that  there  may  be  losses 
incurred  in,  because  forming  a  part  of  a  business  carried  on  within  the 
state." 

Sale  of  Property  Other  Than  Securities —  Article  417  deals  with 
profits  arising  from  the  sale  of  property  other  than  securities 
when  belonging  to  nonresidents.  Such  property,  when  personal, 
should  have  an  actual  situs  within  the  State,  but  not  form  part 
of  the  assets  of  a  business  carried  on  within  the  State.  Goods 
in  transit  or  goods  shipped  here  for  sale  do  not  appear  to  come 
within  this  requirement.  The  profits  resulting  from  the  occa- 
sional sale  of  a  piece  of  real  estate  by  a  nonresident  would  be 
subject  to  tax  unless  the  ownership  of  the  real  estate  is  incor- 
porated. There  seems  to  be  no  escape  from  this  conclusion.  In 
some  States  where  there  is  an  income  tax,  the  profits  arising 
from  the  sale  of  real  estate  are  exempt. 

Rents  and  Royalties.—  (Art.  418.)  The  taxation  of  a  landlord 
residing  without  the  State  on  income  derived  from  property 
located  within  the  State,  proceeds  on  a  theory  of  jurisdiction 
over  the  property.  The  withholding  provisions  of  the  statute 
do  not  apply  to  deduction  of  rent,  although  the  definition  of  with- 


THE  STATE  COMPTROLLER'S  REGULATIONS (CONT'D)   493 

holding  agent  includes  a  person  having  the  control  or  payment 
of  rent. 

The  question  as  to  whether  income  from  royalties  due  to  a  non- 
resident is  taxable,  involves  a  somewhat  different  conception 
than  income  derived  from  pensions  referred  to  in  article  413  of 
the  regulations.  Royalties,  in  one  sense  of  the  term,  may  be 
equivalent  to  rent  from  property  in  the  State,  viz.,  royalties 
received  by  the  grantor  of  a  patent,  lease  of  a  mine  or  quarry, 
and  payable  proportionately  to  the  use  made  of  the  right  by  the 
grantee.  In  this  sense,  royalty  will  be  taxable  to  a  nonresident. 
On -the  other  hand,  a  royalty  might  refer  to  a  payment  made  to 
an  author  or  composer  by  an  assignee  or  licensee  in  respect  to 
each  copy  of  the  work  sold.  In  the  case  of  the  author  or  com- 
poser, the  payment  is  in  the  nature  of  a  commission  for  the  sale 
of  a  literary  or  musical  composition,  the  original  work  being  in 
the  form  of  personal  service  rendered  without  the  State.  In  such 
case  there  is  neither  property  located,  business  or  occupation 
carried  on,  nor  salary  earned,  in  the  State. 

Tax  Not  Imposed  on  Income  from  Securities  Owned  by  Nonresi- 
dent—  Some  misconception  has  arisen  as  to  what  is  meant  by 
gross  income  excluded  from  taxation  in  the  case  of  nonresidents 
under  subdivision  3,  section  359.  That  subdivision  reads  as 
follows : 

"  3.  In  case  of  taxpayers  other  than  residents,  gross  income  includes 
only  the  gross  income  from  sources  within  the  state,  but  shall  not  include 
annuities,  interest  on  bank  deposits,  interest  on  bonds,  notes  or  other  inter- 
est bearing  obligations,  or  dividends  from  corporations,  except  to  the 
extent  to  which  the  same  shall  be  a  part  of  income  from  any  business, 
trade,  profession  or  occupation  carried  on  in  this  state  subject  to  taxation 
under  this  article." 

An  example  of  what  is  meant  by  income  from  interest-bearing 
obligations  in  the  last  sentence  would  be  that  a  nonresident  will 


494         THE   STATE   COMPTROLLER'S   REGULATIONS (cONT'l>) 

not  be  taxed  on  the  income  from  stock  and  securities  in  which 
he  may  have  invested  the  surplus  of  his  business.  On  the  other 
hand,  if  a  man  is  engaged  in  the  business  of  a  security  broker, 
buying  and  selling  on  commission,  and  also  obtaining  a  profit 
from  the  enhancement  in  the  value  of  such  securities,  such 
income  will  be  taxable. 

Deductions —  (Art.  431.)  It  may  be  said  at  the  outset  that  a 
nonresident  will  be  entitled  to  no  deductions  unless  his  return 
discloses  his  total  gross  income  from  sources  both  within  and 
without  the  State.  (Section  367,  Tax  Law;  article  481,  regula- 
tions.) Thus  in  the  nonresident  form  it  is  necessary  to  state  the 
income  from  within  and  without  the  State,  whether  from  rents 
or  property  located  within  or  without  the  'State,  or  from  business 
so  located.  In  any  event,  the  nonresident  only  receives  a  pro- 
portionate deduction,  that  is  to  say,  in  the  proportion  that  his 
gross  taxable  income  bears  to  his  total  gross  income.  The  latter 
is  arrived  at  by  adding  to  the  gross  taxable  income  the  non- 
taxable  income. 

"  Taxes  Deductible  by  a  Nonresident — (Art.  433.)  Income  taxes 
and  assessments  for  local  improvements  are  not  deductible  by  a 
nonresident,  nor  are  they  deductible  by  a  resident;  neither  are 
estate  and  inheritance  taxes  which  are  chargeable  against  capital 
and  not  against  income.  If  a  nonresident  owns  a  piece  of  real 
estate  outside  of  the  State  which  he  uses  for  a  factory  from 
which  goods  are  shipped  to  his  New  York  warehouse,  and  he  pays 
taxes1  on  that  factory,  they  should  be  deducted  as  an  expense  of 
the  business  in  the  'State. 

Interest  Deductible  by  a  Nonresident —  (Art.  434.)  A  non- 
resident may  deduct  from  his  gross  income  only  the  proportion 
of  interest  paid  or  accrued  in  the  state  which  the  amount  of  his 
gross  income  within  the  State  bears  to  his  total  gross  income.  By 


THE   STATE   COMPTROLLERS   REGULATIONS  -      cONT'o          495 


total  gross  income  is  included  his  gross  income  plus  income 
exempt  from  taxation,  including  all  his  income  from  sources 
within  the  State.  This  would  include  net  income  that  the  ;non- 
resident  receives  from  bonds,  securities  or  annuities  otherwise 
nontaxable. 

Losses  —  (Art.  435.)  A  nonresident  may  only  deduct  losses 
arising  out  of  business  in  the  State,  or  on  property  located  in 
the  State  which  would  yield  an  income  tax  to  the  State.  Thus, 
losses  on  sales  of  realty  in  the  State  would  be  deductible,  but 
not  losses  from  the  sale  of  securities.  If,  on  the  other  hand, 
his  house  in  New  Jersey  be  destroyed  by  fire,  for  which  there 
was  no  insurance  compensation,  he  could  not  deduct  this  loss. 

Apportionment  of  Nonresident  Income  —  (Art.  451.)  Sales- 
men's salaries,  etc.  —  This  article  deals  with  the  apportionment 
of  income  from  sales  made  in  and  out  of  the  State,  where  the 
receipts  inure  directly  to  the  employer.  The  basis  of  apportion- 
ment is  the  volume  of  business,  but  the  volume  of  business  may 
not  in  the  case  of  a  salesman  on  salary  be  the  fairest  test.  For 
example,  the  volume  of  business  transacted  in  the  State  may  pro- 
duce a  smaller  income  than  the  same  volume  of  business  without 
the  State  and  disproportionate  to  the  cost  price.  A  salesman 
receiving  a  salary  of  $50,000  a  year  may  sell  three  or  four  com- 
modities, some  of  which  may  be  sold  readily  at  large  sums  with 
small  profits.  The  other  commodities  may  be  sold  at  greater 
effort  at  lower  prices  with  proportionately  greater  profits.  In 
such  cases  a  special  rule  of  apportionment  may  be  offered  in 
accordance  with  article  470,  infra. 

Apportionment  of  Salaries  —  In  the  apportionment  of  nonresi- 
dents' salaries  and  commissions,  whether  of  salesmen  or  of  other 
employees,  the  question  whether  the  service  is  rendered  within 


-  (CONT'D) 

the  State  is  very  often  doubtful.  For  example,  a  nonresident 
salesman  or  agent  assigned  to  certain  territory,  in  and  out  of  the 
State,  may  offer  goods  for  sale  from  New  York  by  telegraph, 
telephone,  letters,  etc.,  to  customers  outside  the  State,  and  these 
offers  may  be  accepted  outside  the  State.  It  would  seem  that  in 
such  cases  the  contracts  being  made  outside  the  State  the  'services 
would  be  rendered  outside  the  State.  On  the  other  hand,  the 
sales  were  negotiated  from  the  New  York  office.  Article  456  may 
have  been  framed  with  such  a  situation  in  mind.  This  article 
refers  to  a  business,  but  the  same  principle  applies  to  the  appor- 
tionment of  salaries  as  to  business. 

Article  452  covers  the  apportionment  of  salaries  of  nonresident 
employees  and  officers,  other  than  salesmen,  on  the  basis  of  time. 
Here  again  time  may  not  be  a  fair  test  of  apportionment.  If, 
for  instance,  an  artist  residing  in  Connecticut  receives  $150,000 
a  year  for  fifty  performances  in  New  York,  shall  we  say  that  the 
hours  employed  in  practise  in  Connecticut  are  not  of  value  to  the 
New  York  performance,  and  hence  subject  to  apportionment. 

Income  from  Vessels —  Article  454  provides  that  charter  moneys 
are  not  taxable  to  a  nonresident  for  freights  on  vessels  operated 
between  New  York  and  foreign  ports  or  ports  of  other  States,  if 
the  person  maintains  no  agency  in  New  York  and  is  carrying  on 
no  business  here.  The  maintenance  of  a  regular  office  would  not 
itself  be  sufficient  to  prove  income  earned  in  New  York,  if  the 
freight  was  earned  on  the  high  seas  beyond  the  three-mile  limit. 
Only  a  small  proportion  would,  in  any  event,  go  to  the  State  of 
New  York. 

Under  the  heading  of  "  withholding "  attention  has  already 
been  called  to  such  services  as  may  be  considered  to  be  rendered 
without  the  State  by  a  nonresident,  although  the  income  may  be 
derived  from  a  source  within  the  State.  References  have  been 


)        497 

made  to  a  reporter,  collector  or  professional  man  paid  from  a 
New  York  source,  but  engaged  outside  of  the  State,  the  service 
within  the  State  being  purely  incidental  and  minor  to  the  work 
done  without  the  State.  This  is  covered  by  article  456  of  the 
Regulations. 

Apportionment  of  Business  Income — Article  457  provides  for 
the  apportionment  of  business  income  "  on  a  fair  and  equitable 
basis,  in  accordance  with  approved  methods  of  accounting."  Few 
business  concerns  keep  their  records  in  such  form  so  that  the 
business  attributable  to  New  York  State  and  that  done  elsewhere 
can  be  correctly  ascertained.  It  will,  therefore,  be  found  neces- 
sary to  adopt  the  artificial  basis  of  apportionment  required  by 
article  457,  which  depends  upon  the  relative  proportion  that  the 
New  York  Factors  as  defined  in  this  article,  bear  to  the  total 
aggregate  of  factor's  as  so  defined. 

The  New  York  factors  include  the  following: 

(1)  The  average  tangible  real  and  personal  property  used 
in  the  business  within  the  State,  which  is  obtained  by  halving 
the  sum  of  these  items  for  the  beginning  and  end  of  the  year. 

(2)  The  total  wages,  salaries  and  sums  paid  for  personal 
services  in  the  business  carried  on  within  the  State  during 
the  year. 

(3)  The  gross  sales  or  charges  for  -services  performed  by 
or  through  any  agency  located  within  the  State. 

The  Total  Factors — Include  the  sum  of  the  same  items,  viz., 
tangible,  real  and  personal  property  in  and  out  of  the  State,  plus 
the  total  wages  and  salaries  paid  in  and  out  of  the  State,  plus  the 
total  gross  sales  or  charges  for  services  performed  in  and  out  of 
the  State. 


498          THE   STATE   COMPTROLLER^   REGULATIONS (CONT?D) 

Illustration. —  The  following  is  an  example  showing  the  method 
of  computing  the  proportion  for  taxation : 

Take  a  nonresident  engaged  in  the  automobile  business,  owning 
garages  and  shops  in  New  York  and  in  New  Jersey  and  also 
doing  repair  work  in  both  States. 

New  York  Factors:  m  •-  TJan.  1  F Dec.  31  FAveragel 

Real  estate  (garage  and  shop) $60,000  $140,000  $100,000 

Tangible  personal  property  (autos,  parts, 

etc.)  150,000  170,000  160,000 

Total  wages,  etc.  in  New  York 60, 000 

Total  gross  sales  in  N.  Y 200,  000 

Total  gross  charges  for  services  in  N.  Y 40,  000 


•      $560, 000 

Total  Factors: 

Real  estate  in  and  out  of  the  state 160,  000       220,  000  190,  000 

Tangible  personal  property  in  and  out  of 

state      250, 000     '  320, 000  285, 000 

Total  wages  in  and  out  of  N  .Y 145,  000 

Total  gross  sales   500,  000 

Total  gross  charges  for  services  in  and  out 

of  N.  Y 80,000 


$1,200,000 


The  proportion  of  income  taxable  in  New  York  would  be 
560,000 

-  —  7/15  X. 
1,200,000 

If  the  total  income  were  $300,000  the  taxable  income  would  be 
300,000  X  7/15  ==  $140,000. 

Credit  for  Taxes —  (Arts.  482-484.)  Article  482  provides  for 
credit  for  taxes  on  the  basis  of  net  income  taxed  in  other  States 
or  countries,  derived  from  sources  in  New  York  State  "  provided 
such  credit  shall  be  allowed  only  if  the  laws  of  such  .State  or 


THE   STATE   COMPTROLLER'S   REGULATIONS  -      cONT'p          499 


country  grant  a  substantially  similar  credit  to  residents  of  New 
York  State."  This  implies  in  effect  that  if  a  resident  of  New 
Jersey  does  all  his  business  in  New  York  and  derives  all  his 
income  from  that  business,  and  pays  an  income  tax  in  New  Jersey 
on  all  that  income,  if  he  is  taxable  under  the  present  New  York 
Income  Tax  Law  on  that  same  income  he  will  pay  no  tax  to  this 
State,  provided  New  Jersey  allows  a  similar  credit  to  residents 
of  New  York  doing  business  in  New  Jersey. 

The  proviso  in  this  reciprocal  provision  is  the  fly  in  the  oint- 
ment. There  is  no  State  or  country  at  the  present  time  that  has 
such  a  reciprocal  provision.  The  Federal  government  has  a  recip- 
rocal provision  in  the  present  Income  Tax  allowing  credit  for 
taxes  paid  or  accrued  during  the  taxable  year,  by  a  resident  alien, 
who  is  a  citizen  or  subject  of  a  foreign  country,  "  upon  income 
derived  from  sources  therein,  if  such  country,  in  imposing  such 
taxes,  allows  a  similar  credit  to  citizens  of  the  United  States  resid- 
ing in  such  country.  It  should  be  noted  that  the  federal  provision 
does  not  apply  to  citizens  of  states  of  the  Union,  and  also  that  the 
State  of  New  York  does  not  allow  any  credit,  or  even  a  deduction 
as  against  income,  for  income  taxes  paid  to  the  United  States. 
(See  Art.  433.) 

Powers  of  Comptroller;  Revision  of  Taxes;  Certiorari;  Refunds  — 

(Arts.  481-484.)  These  subjects  have  already  been  discussed 
in  detail  in  chapters  XX,  XXI  and  XXII  of  the  body  of  the 
book,  and  will  only  be  briefly  referred  to  here. 

Article  571  of  the  Comptroller's  regulations  treats  only  of  the 
Comptroller's  power  to  revise  an  erroneous  tax  in  terms,  by  refer- 
ence to  the  statute,  sections  373,  374,  Tax  Law.  Those  sections 
do  not,  however,  give  the  Comptroller  any  discretionary  power  in 
these  matters,  except,  perhaps,  where  the  error  or  omission  comes 
to  the  attention  of  the  Comptroller,  or  his  deputies  and  assistants, 
and  they  act  ex  parte.  It  is  in  such  case,  that  under  section  373, 


500          THE   STATE    COMPTROLLER'S   REGULATIONS (CONT?D) 

Tax  Law,  lie  may  revise  the  return  if,  "  in  his  opinion/'  the  same 
appears  to  be  incorrect.  In  other  cases,  where  the  taxpayer  dis- 
covers overpayment,  or  an  erroneous  assessment  or  additional 
assessment  made  by  the  Comptroller,  the  taxpayer  may  apply 
for  a  revision  under  section  374,  Tax  Law,  and  "  the  Comptroller 
shall  grant  a  hearing  thereon."  A  prima  facie  case  for  a  hearing 
need  only  be  shown  in  such  cases,  if  this  section  is  construed  in 
conformity  with  the  former  practice  of  the  Comptroller  applied 
to  corporations,  under  section  198  (formerly  195)  of  the  Tax 
Law.  This  is  also  the  practice  of  the  State  Tax  Commission 
under  section  218  of  the  Tax  Law.  Section  374  of  the  Personal 
Income  Tax  Law  was  taken  from  the  sections  of  the  Business 
Corporations  Law  referred  to,  and  the  practice  in  such  cases  will 
be  found  in  chapters  XX,  XXI  and  XXII,  supra. 

Claim  for  Refund —  Xo  forms  of  claim  for  refund  have  yet 
been  issued,  but  a  refund  application  may  be  made  by  setting 
forth  the  facts  as  to  overpayment  and  other  facts  required  by 
the  statute  and  regulations,  and  filing  such  application  duly  exe- 
cuted and  verified  with  the  State  Comptroller. 

Certiorari — .  The  practice  in  certiorari  is  set  forth  in  detail  in 
chapter  XXII,  supra. 


THE   STATE    COMPTROLLER'S    REGULATIONS (cONT'j))        501 


DISTRICT    OFFICES    OF  NEW  YORK  STATE    INCOME 
TAX  BUREAU  AND  DISTRICT  DIRECTORS 

Office  Location  Director 

1.  Albany 42  North  Pearl  st Roy  H.  Palmer 

2.  New  York 120  Broadway John  E.  Dempsey 

3.  Brooklyn 180  Montague  st Henry  B.  Cochen 

4.  The  Bronx 161st  st.  and  St.  Ann's  ave Thomas  W.  Whittle 

5.  Jamaica 2  North  Washington  st Frederic  E.  Knauss 

6.  White  Plains Court  House Courtney  D.  Wbittemore 

7.  Buffalo 11  West  Swaa  st Henry  Seilheimer 

8.  Rochester .......   106  Main  st.,  East James  M.  Mangan 

9.  Syracuse 423£  Salina  st Daniel  T.  Leo 

10.  Utica 1 10  Genesee  st Fred  J.  Graff 

11.  Elmira 230  Lake  st Louis  C.  Andrews 

12.  Binghamton Court  and  State  sts Henry  B.  Mulford 

13  Kingston 518  Broadway J.  De  Puy  Hasbrouck 


INDEX    TO    SUPPLEMENT    TO    "TAXATION    OF    COR- 
PORATIONS AND  PERSONAL  INCOME  » 


PAGE 

Accounts  outstanding,  when  free  from  personal  tax 402 

Agent  may  make  return  for  fiduciary 458 

Annual  summary  and  letter  of  transmittal  accompanying  information .  .  .  482 

return  ( form  106)    482 

Annuities  representing  return  of  capital,  need  not  be  returned  on  informa- 
tion report   480 

Application  must  be  filed  for  relief  from  erroneous  assessment 405 

Apportionment  of  deductions  in  the  case  of  non-residents 494 

of  interest  in  the  case  of  non-residents 494 

Apportionment  of  business  income 497 

of  income,   of  non-resid'ent   employees 469 

according  to  volume    469 

according  to  time    469 

of  non-resident's  income   495 

of  income  under  Connecticut  corporation  tax  law 418 

Attorney-General's  opinions  as  to  school  tax 413 

Average  monthly  payment  to  be  taken  if  employee  has  moved  from  job 

to    job    479 

Bad  debts,  charged  off,  when  deductible 437 

when  deductible    445 

Bank  deposits,  when  free  from  personal  tax 402 

Beneficiary,  when  tax  paid  by,  or  by  fiduciary 447 

Bequest,   sale  of  property  acquired  by 450 

Bills   for   merchandise,   telegrams,   telephones,   freight,    storage,   etc.,   no 

information  required  as  to 480 

Bonds  in  default,  are  they  taxable  as  personalty 405 

and  stocks  must  be  owned  and  controlled  by  holding  corporation 424 

stocks,  securities,  when  income  from,  taxable  to  non-resident 491 

Branch  offices  in  some  cases  to  make  return 479 


[The  references  in  this  index  are  to  pages.  On  page  6^1  et  seq.  there 
ift  a  separate  index  to  the  text  of  the,  Comptroller's  Regulation.*.  On  pages  373 
ct  Kcq.  irill  lie  found  an  index  to  the  Corporation  Tax  Articles  9  and  9a.] 

[503] 


504  INDEX    TO    SUPPLEMENT 

PAGE 

Bulletin  No.  2,  special,  as  to  state  employees 476 

No.  3,  as  to  municipal  employees 476 

to  local  assessors  by  State  Tax  Commission 403 

Burden  of  Proof,  presumption  that  Comptroller's  assessment  is  correct.  .  .  460 

Business  carried  on  in  the  state,  definition  of 487 

corporation,  exempt  from  personal  tax 409 

income   from,   how    apportioned 497 

Calendar  year,  information  return  required  for  payments  in 452 

Capital  stock  defined  in  relation  to  exemption  from  personal  tax 408 

Carrying  on  business,  what  is  not  (International  Text  Book  Co.  v.  Tone)  .  489 

Certiorari 500 

Certificate  of  residence,  how  long  retained 470 

to  be  attached  to  payrolls  of  State  and  Municipal  departments 470 

Charter  moneys  not  taxable  to  non-resident,  for  freights  on  vessels  to 

foreign   ports    496 

Coupons   and   interest   exempt 4-75 

City  of  New  York  .(See  New  York  City) 

Comptroller's    powers    497 

Contractors  and  sub-contractors,  return  by 479 

Commissions  of  insurance  agent,  when  withheld 467 

Connecticut's  corporation  tax,  Underwood  Typewriter  Co.  v.  Chamberlain.  418 

in  the  nature  of  an  excise  tax 418 

Constitutionality  of  Connecticut's  corporation  income  tax  law 418 

of  New  York  State  Income  Tax  Act 426 

of  tax  on  non-residlent   426 

Corporation  status  differs  from  status  of  individual  taxpayer 489 

local  taxation  of    401 

Credit  for  taxes,  and  reciprocal  provision , 498 

Debts,  when  deductible 445 

Decision  in  Tale  v.  Travis 429 

in  Peo.  ex  rel.  Gen.  Chemical  Co.  v.  Cantor,  exempting  machinery ....  425 

in  Peo.  ex  rel.  Barcalo  v.  Kna.pp,  as  to  exemption  from  personal  tax.  .  410 

as  to  deduction  of  excess  profits  tax 421 

in  Peo.  ex  rel.  Franklin  Mill  v.  ColUn,  as  to  exemption  from  personal 

tax  .                                                                                                                 .  410 


[The  references  in  this  index  are  to  pages.  On  page  6//7  et  sec/,  fhcre 
is  a  separate  indry,  to  the  text  of  fh"  Comptroller's  Rraiila-tions.  On  pages  373 
ct  seq.  will  be  found  an  index  to  the  Corporation  Tax  Articles  9  and  9a.] 


INDEX    TO    SUPPLEMENT  505 

Decision  in  Gale  v.  Travis — Continued  PAGE 

in   U.  8.  Glue  Co.  v.  Town  of  Oak  Creek 419 

in  Tauza  v.  Susquehanna  Coal  Co.,  220  N.  Y.  259, 489 

in  International  Textile  Co.  v.  Tone,  220  N.  Y.  313 489 

of  Court  of  Appeals  in  Peo.  ex  rel.  Barcalo  v.  Knapp 419 

in  Pco.  tx  rel.  Franklin  Mill  \.  Collin  on  school  tax  exemption 413 

Deductions  claimed  for  assessment  of  personal  property 404 

when  non-resident  entitled  to 494 

of  bad  debts  previously  charged  off,  when  allowed 437 

of  tax  at  source  (See  Withholding) 

Definition  of  business  carried  on  in  the  state 487 

of  holding  corporation    424 

of    resident    453 

of   withholding   agent    462 

Depreciation  and  depletion  in  case  of  estates  and  trusts 451 

Difference  in  taxation,  between  state  and  federal  law 439 

Disclosure  of  Federal  information  not  unconstitutional 418 

District  offices  and  District  Directors  of  N.  Y.  Income  Tax  Bureau 501 

Dividends,  when  income  from,  taxable  to  non-residents 493 

declared,  prior  to  January  1"  1919,  not  taxable  to  residents 438 

when  return  of  information  required  -as  to 480 

Doing  business  in  the  state  (See  Business  carried  on) 

i 

Educational  Law.  assessments  under,  of  personal  property,  do  not  apply 

to  business  corporations 413 

Emerson  Act,  its  application  to  the  Educational  Law 415 

Employees,  non-resident,  how  salaries  are  apportioned 495 

Estates  and  trusts,  only  taxed  once  upon  income 448 

how  beneficiaries,  resident  and;  non-resident,  are  taxed 448 

depreciation  and  depletion  in  case  of 451 

executors    and    administrators    shall    file    return    of    income    OIL   final 

accounting 451 

(See  also  Fiduciaries  and  Trusts) 

Excess  profits  tax  not  deductible 419 

decision  by  Court  of  Appeals 419 

Exemption  of  intangibles 401 

money  on  hand,  on  deposit,  at  interest 401 

of  choses  in  action  from  personal  tax 401 

of  shares  of  stock,  from  personal  tax 401 


[The  references  in  this  index  are  to  pages.  On  page  647  et  seq.  there 
?.<?  n  separate  index  to  the  text  of  the  Comptroller's  Regulations.  On  pages  373 
et  seq.  will  be  found  an  i>ndex  to  the  Corporation  Tax  Articles  9  and  9a.] 


506  INDEX    TO    SUPPLEMENT 

Exemption  —  Continued  PAGE 

of  personal  property  on  tax  day 405 

of  business  corporation  from  personal  tax 408 

of  foreign  corporation  from  personal  tax 408 

no  personal,  to  non-resident 458 

of  interest  coupons   475 

of  business  corporations  from  school  tax 413 

personal,  of  resident,  when  deductible   445 

of    machinery    and    fixtures    of    business    corporations    taxable    under 

Article  9a    425 

of  holding  corporation  from  business  corporation  tax 423 

Exempt  income,  no  return  of  information  required  as  to 480 

Factors,  definition  of  New  York  factors  and  total 497 

Fair  Market  Value,  January  1,  1919,  includes  sales  immediately  follow- 
ing or  preceding    443 

Federal  taxes,  not  deductible 445 

Fees  for  professional  service  need  not  be  reported  on  information  return..  481 

Fiduciary  may  make  return  by  agents 458 

income  may  be  taxed  to  the,  or  to  the  beneficiary 447 

when  tax  payable  by,  or  by  beneficiary 447 

Fixtures  of  business  corporation  exempt 425 

Foreign  corporation  taxed  under  Article  9-a  exempt  from  personal  tax.  .  409 

taxed  in  New  York  City 411 

when  taxable  for  state  or  local  purposes 488 

may  not  maintain  action  unless  tax  is  paid 488 

letter  from  Counsel  to  State  Tax  Commission  on  taxation  of 412 

(unregistered)  is  not  presumed  to  be  doing  business  in  state 47t> 

Form  of  residence  certificate   (Form  101 ) 470 

return  of  tax  withheld  at  source   (Forms  102,  103) 472,  473,  474 

instructions  accompanying  Form  102    (Form  102-a) 472 

bulletin  to  State  Municipal  Departments 476,  478 

information  return  (Form  105)    481 

letter  of  transmittal   (Form  106) 482 

Gift,  as  "closed  transaction"  resulting  in  taxable  profit 452 

sale  of  property  acquired  by 442,  450 

Griggs,  Hon.  J.  W.,  as  amicus  curice  for  New  Jersey  in  Travis  v.  Yale.  .  .   427 
Gross  income,  how  determined  in  case  of  non-residents 427 


[The  references  in  this  index  are  to  pages.  On  page  6^7  et  seq.  there 
is  a  separate  index  to  the  text  of  the  Comptroller's  Regulations.  On  pages  3-73 
et  seq.  will  le  found  an  index  to  the  Corporation  Tax  Articles  9  and  9a.] 


INDEX  TO  SUPPLEMENT  507 

PAGE 

Holding  corporation,  what  is 423 

must  own  and  control  securities 423 

Husband  and  wife's  personal  exemption,  apportionment  of 448 

returns  may  be  separate  or  joint 457 

Impairment  of  obligation  of  contract  claimed  in  Yale  v.  Travis 431 

Income-producing,  meaning  of    402 

Indebtedness  for  deductions  in  assessment  of  personal  property 404 

Information  at  source 462 

returns  to  be  filed  by  whom 475 

return  of 475 

returns  not  required  for  interest  due  other  states,  foreign   countries 

or  municipalities 480 

return  when  required  as  to  payments  of  dividends 480 

return  (Form  105) 481 

returns  not  required1  when  tax  withheld 451 

Insurance  agents,  when  tax  on  commissions  withheld 467 

Intangible  property,  should  bear  interest  on  tax  day 405 

exemption   of    401 

Interest  producing  intangible  property,  free  from  tax 402 

on  bonds,  bank  deposits,  etc.,  when  taxable  to  non-resident 493 

accrued  prior  to  January  ,1,  1919,  not  taxable 438 

coupons  exempt 475 

Interstate  Commerce  clause    ( Yale  v.   Travis) 431 

not  tax  under  Connecticut  Corporation  Tax  law 419 

Inventory  valuations,  three  methods  applied  to  illustration  determining 

gain  or  loss   441 

Jurisdiction  to  assess  for  personal  property  may  be  questioned 411 

I 

Knox  Justice,  decision  of,  in  Travis  v.  Yale  &  Towne 426 

Letter  from  Counsel  to  State  Tax  Commission  as  to  exemption  of  intang- 
ibles   406 

on  taxation  of  foreign  corporations 412 

of  transmittal  accompanying  information  return    (Form  106) 482 

Limitations,  statute  of,  in  connection  with  right  of  state  to  recover  taxes.  460 

Local  taxation  of  persons  and  corporations 401 

Losses,  when  non-resident  entitled  to  deduction  for 495 


[The  references  in  this  index  are  to  pages.  On  page  647  et  seq.  there 
is  a  separate  index  to  the  text  of  the  Comptroller's  Regulations.  On  pages  373 
et  seq.  will  be  found  an  foidex  to  the  Corporation  Tax  Articles  9  and  9a.] 


508  INDEX  TO  SUPPLEMENT 

PAGE 

Machinery  and  Fixtures  of  business  corporation  exempt  from  taxation .  .  .  425 

Manufacturing  and  mercantile  corporations  exempt  from  personal  tax.  .  .  408 

Market  Value   ( See  Fair  Market  Value)    443 

Money  on  hand,  on  deposit,  at  interest,  exempt  from  personal  tax 401 

Mortgage,  tax  on  income  from,  is  not  a  tax  on 437 

Movable  machinery  and  fixtures,  exempt  from  taxation 425 

New  Jersey,  state  of,  represented  in  Traris  v.  Yale 426 

New  York  factors,  definition  of 497 

and  total  factors,  definition  of 497 

New  York  City,  assessment  of  foreign  corporations  in 411 

assessments  of  personal  property  in 404 

Non-resident  feature  of  State  Income  Tax  attacked  as  unconstitutional.  .  420 

receives  no  personal  exemption 458 

taxed  on  income  in  Oklahoma 428 

section,  of  State  Comptroller's  Regulations 484 

when  taxable  on  personal  property  for  local  purposes 488 

not  taxable  on  pensions   485 

listed  on  payrolls  of  state  and  municipal  departments  subject  to  with- 
holding of   salaries    477 

status  of 485 

gross  income  of,  how  determined   486 

.     when  taxable  on  income  from  rents  and  royalties 492 

income  of,  how  apportioned    495 

when  taxable  for  charter  moneys  received  from  freights  of  vessels 496 

when  entitled  to  deduction  for  interest,  taxes,  losses 494 

taxable  on  income  from  sale  of  property  having  situs  in  state 492 

not  taxable  for  dividends,  interest  on  notes,  bonds,  bank  deposits,  etc. .  493 

when  taxable  on  income  from  sale  of  stocks,  bonds,  securities,  etc.  .  .  .  491 

Oklahoma's,  income  tax  act    428 

income  tax  act  case    (Shaffer  v.   Carter) 428 

Outstanding  accounts,  when  free  from  personal  tax 402 

Partnership  earnings,  withdrawals  of.  are  not  taxable. 446 

Payment  for  professional  service  on  annual  basis 466 

for  which  no  return  of  information  is  required 480 

Payrolls  audited  by  State  Comptroller  require  certificates  of  fiscal  offices 

of  departments 477 


[The  references   in   this   index  are   to   pages.      On    page   G-'fl   et   sec/, 
if;  a  separate  index  to  the  te.rt  of  the  Comptroller's  Regulation s.     On  pages 
et  meg.  will  be  found  an  index  to  the  Corporation  Tv.r  Articles  9  and  9a.] 


INDEX    TO    SUPPLEMENT  509 

PAGE 
Penalties,  failure  to  make  return  on  time  creates 460 

for  fraudulent  returns    452 

Pensions  of,  teachers,  not  taxable 485 

to  non-residents  need  not  be  reported  on  information  return 481 

of  non-residents,  not  taxable    485 

Persons,  local  taxation  of    401 

Personal  exemption,  of  residents,  when  deductible 445 

apportionment  of,  between  husband  and  wife 446 

Personal  property  tax,  exemption  of  intangibles  from 401 

of  non-resident,  when  taxable    488 

defined  in  relation  to  exemption  of  business  corporations 408 

Personal  service,  income  only  deductible  and  withheld 462 

Personal  tax,  on  bonds,  defaulting  in   interest 405 

exemption  of  corporation   from 408 

cannot  be  collected  from  non-resident  by  supplementary  proceedings.  .  .    411 

Powers   of    Comptroller    499 

Presumption  that  distributions  made  ratably  from  taxable  and  non-tax- 
able income 448 

that  state  and  municipal  employees  are  residents 477 

Privilege  and  residents  immunity  clause,  in  Yale  v.  Travis 431 

Privilege  tax,  corporate  income  tax  is  a 419 

Process,  service  of,  when  corporations  are  doing  business  in  state 488 

Professional  service,  fees  for,  need  not  be  reported  on  information  return.   481 

payments  for  on  annual   basis 466 

Proportionate  deductions  only  allowed  to  non-residents 494 

Property  having  situs  in  the  state,  when  income  from,  is  taxable  to  non- 
resident     492 

Reciprocal  provision  of  credit  for  taxes 499 

Record  to  be  maintained  by  heads  of  state  departments  as  to  compensation 

of  $1,000  or  more    478 

Refunds 400 

of  excessive  tax  withheld 458 

Regulation  No.  1  information  as  to  income  of  municipal  employees ....   476 

special  No.  2  as  to  state  employees,  information  as  to  income  of 476 

Relief  from  erroneous  assessment,  requires  previous  application  for  relief.   406 
Rents  paid  to  real  estate  agents,  need  not  be  reported  on  information 

return 480 

and  royalties,  when  income  from  taxable  to  non-residents 492 


[The  references  in  this  index  are  to  pages.  On  page  Sjl  et  seq.  there 
if!  a  separate  index  to  the  text  of  the.  Comptroller's  RrcjulatiovK.  On  pages  373 
rt  fteq.  imll  he  found  an  tndex  to  the  Corporation  Tax  Articles  9  and  9a.] 


510  INDEX    TO    SUPPLEMENT 

PAGE 

Re-organization  profits,  when  taxable    444 

shareholders  receiving  greater  aggregate  for  value  of  stock 444 

Report  (See  Return) 

Resident  defined 453 

personal  exemption  of,  when  deductible 445 

Residence,  facts  establishing  intent  for  purposes  of 454 

presumption  of  as  to  state  and1  municipal  employees 477 

largely  a  question  of  intent 454 

determination  of  status  of    454 

certificate  (Form  101 )    470 

how  long  retained 470 

of  married  woman  how  determined   457 

of  incompetent,  how  determined 457 

of  emancipated  minor,  how  determined 457 

Return  of  information  as  to  payment  of  dividends 480 

of  husband  and  wife,  may  be  separate  or  joint 457 

penalties  for  fraudulent   453 

of  tax  withheld  at  source  (Form  102,  102a) 452 

of  information  at  source   (See  Information) 472,  475 

by  contractors  and  sub-contractors    479 

of  information   (See  Information) 451 

by  branch  offices  instead  of  main  offices 479 

Revision  of  taxes 500 

Royalties,  when  income  from,  taxable  to  non-resident 492 

Sales  of  stocks,  bonds  and  other  securities,  when  income  from  taxable  to 

non-resident    491 

Sale  of  property  acquired  by  gift  or  bequest 450 

Salaries,  income  of  non-resident,  from,  withheld 462 

of  salesmen,  clerks,  etc.,  how  apportioned 495 

School  tax,  exemption  of  business  corporations  from 413 

opinion  of  attorney-general  as  to 413 

Securities  of  municipalities,  and  of  other  states  and  foreign  countries, 

income  from  not  subject  to  information  returns 480 

income  from,  when  taxable  to  non-residents 493 

Service  of  process,  when  corporations  are  doing  business  for  purposes  of.  .  487 

Source   (See  Withholding  at  source  information  at  source) 

State  Tax  Commission's  directions  to  local  assessors  as  to  personal  taxes.  403 

letter  from  counsel  as  to  exemption  of  intangibles 406 


[The  references  in  this  index  are  to  pages.  On  page  641  et  seq.  there 
is  a  separate  index  to  the  text  of  the  Comptroller's  Regulations.  On  page*  373 
et  seq.  will  be  found  an  index  to  the  Corporation  Tax  Articles  9  and  9a.] 


INDEX    TO    SUPPLEMENT  511 

PAGE 

Status  of  residence,  how  determined 454 

of  corporation  differs  from  individual  taxpayer  490 

of  non-resident  fixed  by  absence  of  certificate  485 

Stocks  and  bonds  must  be  owned  and  controlled  by  holding  corporation.  .   424 

bonds,  securities,  income  from,  when  taxable  to  non-resident 491 

Stocks,  dividends,  income  under  Federal  law  of  1913 444 

when  taxable : 444 

difference  between  state  and1  Federal  law  in  taxing 444 

Sub-contractors,  return  by 479 

Supplementary  proceedings  cannot  be  brought  to  collect  a  personal  tax 

from  non-residents 411 

Tanzer,  Laurence  Arnold,  as   amicus  curice  for   cities   in  New  York  in 

Travis  v.  Yale 427 

Tax  day,  its  relation  to  exemptions  of  personal  property 405 

Taxes,  credit  for 452 

when  deductible  by  a  non-resident 494 

credit  for,  reciprocal  provision  499 

Federal   income  or  business,  license,  privilege,  excise  or  stamp,  not 

deductible  .  .  . , 445 

Tax  Commission  (See  State  Tax  Commission) 

Teachers'  pensions,  not  taxable  485 

Treasurers  of  State  Departments  required  to  withhold  tax  on  non-resident 

salaries 478 

Trusts  (See  Estates  and  Trusts) 

Vessels,  income  from,  when  taxable  to  non-resident 496 

Wife  and  husband's  personal  exemption,  apportionment  of 446 

Wisconsin  Income  Tax  Law  referred  to  in  Yale  v.  Travis 431 

Withholding  of  tax  when  no  certificate  of  resident  is  filed 459 

agent  defined 462 

of  not  more  than  two  per  cent  of  income 463 

of  no  income  under  $1,000 463 

Attorney-General's  letter  as  to 464 

and  information  at  source  462 

of  salaries,  wages,  commissions,  gratuities,  emoluments,  perquisites  of 

non-residents 462 


[The  references  in  this  index  are  to  pages.  On  page  647  et  seq.  there 
is  a  separate  index  to  the  text  of  the  Comptroller's  Regulations.  On  pages  373 
et  seq.  will  be  found  an  index  to  the  Corporation  Tax  Articles  9  and  9o.] 


.M2  INDEX    TO    SUPPLEMENT 

Withholding  of  tax,  etc. —  Continued  PAGE 

of  commissions  of  insurance  agent 467 

information  returns  not  required,  when  there  is 451 

income  not  subject  to  467 

of  apportionable  income  of  non-resident  employees 468 

of  salaries  or  commissions  of  non-resident  collector  or  agent 468 

of  salaries  of  non-residents,  State  and  municipal  employees 477 

Yale  v.  Travis,  decision  in 429 


[The  references  in  this  index  are  to  pages.  On  page  6.'(7  et  seq.  there 
is  a  separate  index  to  the  text  of  the  Comptroller's  Regulations.  On  pages  373 
et  seq.  will  be  found  an  tindex  to  the  Corporation  Tax  Articles  9  and  9a.] 


RULES   AND    REGULATIONS 

OF  THE 

STATE    COMPTROLLER 

FOR  THE  PURPOSE  OF  ENFORCING 

CHAPTER  627  OF  THE  LAWS  OF  1919 

(ARTICLE  16  OF  THE  TAX  LAW) 

THE  TAX  ON  PERSONAL  INCOMES 
WITH  THE  TEXT  OF  THE  ACT 

[513] 


THE  TAX 

ARTICLE  1.  Scope  of  the  law —  The  statute  imposes  an  income 
tax  on  individuals  and  on  certain  estates  and  trusts.  (Tax  Law, 
section  351.)  The  tax  is  upon  net  income,  as  denned  in  the 
statute,  after  deducting  from  gross  income,  as  denned  in  the 
statute,  the  allowable  deductions.  (Tax  Law,  sections  357,  358, 
359,  360  and  361.)  In  certain  cases  exemptions  are  allowed 
against  net  income  and  in  certain  other  cases  credits  against  the 
amount  of  the  tax.  (Tax  Law,,  sections  362  and  363.)  Special 
provisions  of  the  statute  deal  with  the  effect  of  the  tax  on  non- 
resident individuals,  partnerships,  estates  and  trusts.  (Tax  Law, 
sections  351,  364  and  365.)  The  tax  is  payable  upon  the  basis 
of  returns  rendered  by  the  taxpayers  liable  thereto,  except  that 
in  some  instances  it  is  to  be  paid  at  the  source  of  the  income. 
(Tax  Law,  sections  366,  367,  368,  369,  370  and  371.) 

ART.  2.  Tax  rate — For  the  calendar  year  1919,  or  for  any 
fiscal  year  ending  during  the  year  1919  and  for  each  taxable  year 
thereafter,  an  income  tax  is  imposed  at  the  rate  of  one  per  centum 
(1%)  upon  the  first  $10,000  of  taxable  income  (net  income  after 
subtracting  exemptions)  ;  two  per  centum  (2%)  upon  the  amount 
of  taxable  income^  in  excess  of  $10,000  and  not  in  excess  of 
$50,000;  three  per  centum  (3/c)  upon  the  amount  of  taxable 
income  in  excess  of  $50,000. 

ART.  3.  Who  are  taxpayers —  The  word  "  taxpayer  "  includes 

(1)  Every  resident  of  the  State  of  New  York, 

(2)  Every  estate  and  trust  resident  of  the  State  of  New  York, 
whose  income  is  in  whole  or  in  part  subject  to  the  State  income 
tax  and 

(3)  Individuals  and  estates  and  trusts,  nonresident  of  the  State 
of  New  York,  receiving  taxable  income  from  property  owned  or 
from  business,  trade,  profession  or  occupation  carried  on  or  fol- 
lowed within  the  State  of  New  York. 

[515] 


NET  INCOME  DEFINED 

ART.  11.  Meaning  of  net  income — The  tax  imposed  by  the 
statute  is  upon  income.  In  the  computation  of  the  tax  various 
classes  of  income  must  be  considered:  (a)  Income  (in  the  broad 
sense),  meaning  all  wealth  which  flows  into  the  taxpayer  other 
than  as  a  mere  return  of  capital.  It  includes  the  forms  of  income 
specifically  described  as  gains  and  profits,  including  gains  derived 
from  the  sale,  exchange  or  other  disposition  of  capital  assets. 
It  is  not  limited  to  cash  alone,  for  the  statute  recognizes  as  income- 
determining  factors  other  items,  among  which  are  inventories, 
accounts  receivable,  property  exhaustion  and  accounts  payable  for 
expenses  incurred.  (Tax  Law,  sections  353,  354,  355  and  356.} 

(b)  Gross  income,   meaning  income    (in  the  broad  sense)    less 
income  which  is  by  statutory  provision  or  otherwise  exempt  from 
the   tax    imposed    by    the   statute.      (Tax    Law,    section   359.) 

(c)  Net  income,  meaning  gross  income  less  statutory  deductions. 
The  statutory  deductions  are  in  general,  though  not  exclusively, 
expenditures,  other  than  capital  expenditures,  connected  with  the 
production    of    income.       (Tax   Law,    sections    360    and    361.) 

(d)  Net  income  less  exemptions.     Though  taxable  net  income  is 
wholly  a  statutory  conception,  it  follows,  subject  to  certain  modi- 
fications as  to  exemptions  and  as  to  some  of  the  deductions  and 
as  to  nonresidents,  the  lines  of  commercial  usage.      Subject  to 
these  modifications  statutory  "  net  income "  is  commercial  "  net 
income."     This  appears  from  the  fact  that  ordinarily  it  is  to  be 
computed  in  accordance  with  the  method  of  accounting  regularly 
employed  in  keeping  the  books  of  the  taxpayer.     As  to  net  income 
of  nonresidents,  see  Tax  Law,  section  359. 

ART.  12.  Computation  of  net  income. —  Net  income  must  be 
computed  with  respect  to  a  fixed  period.  Usually  that  period  is 
twelve  months  and  is  known  as  the  taxable  year.  Items  of  income 
and  expenditure  which  as  gross  income  and  deductions  are  ele- 
ments in  the  computation  of  net  income  need  not  be  in  the  form 
of  cash.  It  is  sufficient  that  such  items,  if  otherwise  properly 
included  in  the  computation,  can  be  valued  in  terms  of  money. 
The  time  as  of  which  any  item  of  gross  income  or  any  deduction 

[5161 


Net  Income  Defined  517 

is  to  be  accounted  for  must  be  determined  in  the  light  of  the 
fundamental  rule  that  the  computation  shall  be  made  in  such  a 
manner  as  clearly  reflects  the  taxpayer's  income.  If  the  method 
of  accounting  regularly  employed  by  him  in  keeping  his  books 
clearly  reflects  his  income,  it  is  to  be  followed  with  respect  to 
the  time  as  of  which  items  of  gross  income  and  deductions  are 
to  be  accounted  for.  If  the  taxpayer  does  not  regularly  employ 
a  method  of  accounting  which  clearly  reflects  his  income,  the  com- 
putation shall  be  made  in  such  manner  as  in  the  opinion  of  the 
Comptroller  clearly  reflects  it. 

ART.  13.  Bases  of  computation — Approved  standard  methods 
of  accounting  will  ordinarily  be  regarded  as  clearly  reflecting 
income.  A  method  of  accounting  will  not,  however,  be  regarded 
as  clearly  reflecting  income  unless  all  items  of  gross  income  and 
all  deductions  are  treated  with  reasonable  consistency.  See 
section  350  of  the  Tax  Law  for  definitions  of  "paid,"  "paid  or 
accrued"  and  "paid  or  incurred."  All  items  of  gross  income 
shall  be  included  in  the  gross  income  for  the  taxable  year  in 
which  they  are  received  by  the  taxpayer,  and  deductions  taken 
accordingly,  unless  in  order  clearly  to  reflect  income  such  amounts 
are  to  be  properly  accounted  for  as  of  a  different  period.  For 
instance,  in  any  case  in  which  it  is  necessary  to  use  an  inventor)7, 
no  accounting  in  regard  to  purchases  and  sales  will  correctly  reflect 
income  except  an  accrual  method.  (Tax  Law,  section  359.) 
A  taxpayer  is  deemed  to  have  received  items  of  gross  income 
which  have  been  credited  to  or  set  apart  for  him  without  restric- 
tion. (Article  44-)  On  the  other  hand,  appreciation  in  value  of 
property  is  not  even  an  accrual  of  income  to  a  taxpayer  prior  to 
the  realization  of  such  appreciation  through  conversion  or  other 
disposition  of  the  property.  A  taxpayer  who  changes  the  method 
of  accounting  employed  in  keeping  his  books  for  the  taxable  year 
1920  or  thereafter,  shall  before  computing  his  income  upon  such 
new  basis  for  purposes  of  taxation  secure  the  consent  of  the  Comp- 
troller. Application  for  permission  to  change  the  basis  of  the 
return  shall  be  made  at  least  30  days  in  advance  of  the  date  of 
filing  return  and  shall  be  accompanied  by  a  statement  specifying 
the  classes  of  items  differently  treated  under  the  two  systems  and 
all  amounts  which  would  be  duplicated  or  entirely  omitted  as  a 


518  Net  Income  Defined 

result  of  the  proposed  change.  A  taxpayer  subject  to  Federal 
tax  shall  file  with  his  application  a  copy  of  the  consent  of  the 
Commissioner  of  Internal  Revenue,  to  change  the  basis  of  the 
return  for  Federal  tax  purposes.  The  requirement  of  notice  to 
the  Comptroller  will  be  modified  in  such  cases  with  respect  to 
time,  and  where  a  change  is  authorized,  it  will  be  made  effective 
at  the  same  date  as  that  authorized  by  the  Commissioner  of 
Internal  Revenue. 

ART.  14.  Methods  of  accounting —  It  is  recognized  that  no  uni- 
form method  of  accounting  can  be  prescribed  for  all  taxpayers, 
and  the  law  contemplates  that  each  taxpayer  shall  adopt  such 
forms  and  systems  of  accounting  as  are  in  his  judgment  best 
suited  to  his  purpose.  Each  taxpayer  is  required  by  law  to  make 
a  return  of  his  true  income.  He  must,  therefore,  maintain  such 
accounting  records  as  will  enable  him  to  do  so.  Among  the 
essentials  are  the  following: 

(1)  In  all  cases  in  which  the  production,  purchase  or  sale  of 
merchandise  of  any  kind  is  an  income-producing  factor,  inven- 
tories of  the  merchandise  on  hand  (including  finished  goods,  work 
in  process,  raw  materials  and  supplies)   should  be  taken  at  the 
beginning  and  end  of  the  year  and  used  in  computing  the  net 
income  of  the  year; 

(2)  Expenditures  made  during  the  year  should  be  properly 
classified   as  between   capital   and   income,   that   is  to   say,   that 
expenditures  for  items  of  plant,  equipment,  etc.,  which  have  a 
useful   life   extending   substantially   beyond  the  year   should   be 
charged  to  a  capital  account  and  not  to  an  expense  account; 

(3)  In  any  case  in  which  the  cost  of  capital  assets  is  being 
recovered   through   deductions   for  wear   and   tear,   depletion   or 
obsolescence  any  expenditure  (other  than  ordinary  repairs)  made 
to  restore  the  property  or  prolong  its  useful  life  should  be  charged 
against  the  property  account  or  the  appropriate  reserve  and  not 
against  current  expenses. 

A  taxpayer  must  make  his  return  on  the  basis  on  which  his 
books  are  kept ;  so  that  in  making  his  State  return,  as  in  making 
his  Federal  return,  he  must  use  the  basis  on  which  his  books  are 
kept,  if  that  basis  reflects  his  true  income. 


GROSS  INCOME  DEFINED:  INCLUSIONS 

ART.  21.  What  included  in  gross  income —  Gross  income  in- 
cludes in  general  compensation  for  personal  and  professional 
services,  business  income,  profits  from  sales  of  and  dealings  in 
property,  interest,  rent,  dividends,  and  gains,  profits  and  in- 
come derived  from  any  source  whatever,  unless  exempt  from 
tax  by  law.  Profits  derived  from  sales  in  foreign  commerce 
are  taxable.  Income  may  be  in  the  form  of  cash  or  of  property. 
The  amount  of  Federal  or  State  income  tax  paid  for  or  to  a 
bondholder  by  an  obligor  pursuant  to  a  tax-free  covenant  in  its 
bonds  is  in  the  nature  of  additional  interest  paid  the  bondholder 
and  must  be  included  in  his  gross  income.  He  is  not,  however, 
entitled  to  deduct  such  income  tax  paid  on  his  behalf.  As  to 
the  basis  for  determining  gain  or  loss  from  sales  and  exchanges 
see  Tax  Law,  sections  353,  354  and  355  and  article  91. 

ART.  22.  Income  from  Federal,  State  and  Municipal  contracts 

Any  profit  received  from  the  United  States,  a  State  or  political 
subdivision  thereof  by  an  independent  contractor  is  taxable 
income. 

ART.  23.  Compensation  for  personal  services —  Where  no  deter- 
mination of  compensation  is  had  until  the  completion  of  the  serv- 
ices, the  amount  received  is  income  for  the  taxable  year  of  its 
determination.  Commissions  paid  salesmen,  compensation  for 
services  on  the  basis  of  a  percentage  of  profits,  commissions  on  in- 
surance premiums,  tips,  retired  pay,  pensions  and  retiring  allow- 
ances paid  by  States  and  political  subdivisions  or  private  persons, 
are  income  to  the  recipients ;  as  are  also  marriage  fees,  baptismal 
offerings,  sums  paid  for  saying  masses  for  the  dead,  and  other 
gifts  and  contributions  received  by  a  clergyman,  evangelist  or 
religious  worker  for  services  rendered.  The  salaries,  wages  and 
other  compensation  received  from  the  United  States  by  officials 
and  employees  are  not  subject  to  tax.  See  articles  41  and  210. 
(Tax  Law,  section  359.) 

ART.  24.  Compensation  of  State  officers. —  Compensation  paid 
its  officers  and  employees  by  the  State  of  New  York  or  any  other 
state,  or  any  political  subdivision  thereof,  including  fees  re- 

[519] 


520  Gross  Income  Defined:     Inclusions 

ceived  by  notaries  public  commissioned  by  states  and  the  commis- 
sions of  receivers  appointed  by  State  courts,  and  including 
amounts  paid  to  officers  and  employees  while  in  the  military  or 
naval  service,  is  taxable.  Employees  of  universities  receiving 
salaries  paid  in  part  or  in  whole  from  funds  available  under  the 
Smith-Lever  Act  of  May  8,  1914,  who  are  officers  or  employees  of 
a  State,  are  required  to  return  as  taxable  income  the  salaries  so 
received.  This  is  also  true  with  respect  to  the  Act  of  August 
30,  1890,  relating  to  colleges  for  the  benefit  of  agriculture  and  the 
mechanic  arts,  and  to  the  Act  of  March  2,  1887,  relating  to 
agricultural  experiment  stations  in  such  colleges. 

ART.  25.  Compensation  paid  other  than  in  cash —  Where  serv- 
ices are  paid  for  with  something  other  than  money,  the  fair 
market  value  of  the  thing  taken  in  payment  at  the  time  such 
payment  is  made  is  the  amount  to  be  included  as  income.  If 
the  services  were  rendered  at  a  stipulated  price,  in  the  absence 
of  evidence  to  the  contrary  such  price  will  be  presumed  to  be  the 
fair  value  of  the  compensation  received.  Compensation  paid 
an  employee  of  a  corporation  in  its  stock  is  to  be  treated  as  if 
the  corporation  sold  the  stock  for  its  market  value  and  paid  the 
employee  in  cash.  When  living  quarters  such  as  camps  are  fur- 
nished to  employees  for  the  convenience  of  the  employer,  the 
rental  value  need  not  be  added  to  the  cash  compensation  of  the 
employee,  but  where  a  person  receives  as  compensation  for  serv- 
ices rendered  a  salary  and  in  addition  thereto  living  quarters, 
the  value  to  such  person  of  the  quarters  furnished  constitutes 
income  subject  to  tax.  Premiums  paid  by  an  employer  on  life, 
accident  or  health  policies  in  favor  of  his  employees  as  addi- 
tional compensation  of  such  employees  are  income  to  the  em- 
ployees. Contributions  to  retirement  or  pension  funds  accom- 
plished by  deduction  from  the  compensation  otherwise  payable 

to  the  employees  are  income  to  the  employees. 

*> 

ART.  26.  Compensation  paid  in  notes —  Promissory  notes  re- 
ceived in  payment  for  services,  and  not  merely  as  security  for 
such  payment,  constitute  income  to  the  amount  of  their  fair 
market  value.  A  taxpayer  receiving  as  compensation  a  note 
regarded  as  good  for  its  face  value  at  maturity,  but  not  bearing 
interest,  may  properly  treat  as  income  as  of  the  time  of  receipt 


Gross  Income  Defined:     Inclusions  521 

the  fair  discounted  value  of  the  note  at  such  time.  Thus,  if 
it  appears  that  such  note  is  or  could  be  discounted,  the  recipient 
may  include  such  note  in  his  gross  income  to  the  amount  of  its 
face  value  less  discount  computed  at  the  prevailing  rate  for 
such  transactions.  If  the  payments  due  on  a  note  so  accounted 
for  are  met  as  they  become  due,  there  should  be  included  as 
income  in  respect  of  each  such  payment  so  much  thereof  as 
represents  recovery  for  the  discount  originally  deducted. 

ART.  27.  Payments  received  in  warrants  or  securities — Where 
warrants  are  issued  by,  or  in  behalf  of,  a  state,  city,  town,  or  other 
political  subdivision  of  a  state,  and  are  accepted,  in  payment, 
the  fair  market  value  of  such  warrants  at  the  time  of  receipt 
must  be  returned  as  income.  When  a  contractor  receives  pay- 
ment in  stock,  bonds  or  other  obligations  of  a  corporation  other 
than  as  stated  above,  such  securities  shall,  for  the  purpose  of 
determining  gain  or  loss  be  treated  as  the  equivalent  of  cash  to 
the  amount  of  their  fair  market  value.  If  upon  conversion  of  the 
warrants  or  securities  into  cash  or  other  property,  the  contractor 
receives  an  amount  or  value  greater  or  less  than  the  value  so 
returned,  the  profit  or  loss  so  realized  or  sustained  shall  be 
reported  in  the  return  for  the  year  in  which  such  warrants  or 
securities  are  converted. 

ART.  28.  Gross  income  from  business —  In  the  case  of  a  manu- 
facturing, merchandising  or  mining  business  "  gross  income " 
means  the  total  sales,  less  the  cost  of  goods  sold,  plus  any  income 
from  investments  and  from  incidental  or  outside  operations  or 
sources.  In  determining  the  gross  income  subtractions  should 
not  be  made  for  depreciation,  depletion,  selling  expenses  or 
losses,  or  for  items  not  ordinarily  used  in  computing  the  cost 
of  goods  sold.  Any  allowance  made  to  a  taxpayer  by  a  con- 
tracting department  of  the  Government  or  by  any  other  con- 
tractor for  amortization  or  fall  in  the  value  of  property,  either 
as  a  part  of  the  cost  of  production  or  as  a  part  of  the  price  of 
the  product,  shall  be  included  in  gross  income,  but  unlike  the 
Federal  Income  Tax  Law,  no  deduction  for  amortization  is 
allowable  under  the  state  law. 

ART.  29.  Long  term  contracts. —  Persons  engaged  in  contract- 
ing operations,  who  have  uncompleted  contracts,  in  some  cases 


522  Gross  Income  Defined:     Inclusions 

perhaps  running  for  periods  of  several  years,  will  be  allowed 
to  prepare  their  returns  so  that  the  gross  income  will  be  arrived 
at  on  the  basis  of  completed  work;  that  is,  on  jobs  which  have 
been  finally  completed  any  and  all  moneys  received  in  payment 
will  be  returned  as  income  for  the  year  in  which  the  work  was 
completed.  If  the  gross  income  is  arrived  at  by  this  method, 
the  deduction  from  gross  income  should  be  limited  to  the  expen- 
ditures made  on  account  of  such  completed  contracts.  In  arriv- 
ing at  the  gross  income  by  this  method  the  receipts  and  expendi- 
tures relating  to  jobs  commenced  prior  to  1919  must  be  included 
if  completed  in  1919  or  subsequent  years.  Or  the  percentage 
of  profit  from  the  contract  may  be  estimated  on  the  basis  of 
percentage  of  completion,  in  which  case  the  income  to  be  re- 
turned each  year  during  the  performance  of  the  contract  will  be 
computed  upon  the  basis  of  the  expenses  incurred  on  such  contract 
during  the  year;  that  is  to  say,  if  one-half  of  the  estimated  ex- 
penses necessary  to  the  full  performance  of  the  contract  are 
incurred  during  one  year,  one-half  of  the  gross  contract  price 
should  be  returned  as  income  for  that  year.  Upon  the  com- 
pletion of  a  contract  if  it  is  found  that  as  a  result  of  such 
estimate  or  apportionment  the  income  of  any  year  or  years  has 
been  overstated  or  understated,  the  taxpayer  should  file  amended 
returns  for  such  year  or  years.  (Tax  Law,  sections  358  and  374 
and  article  574-) 

AKT.  30.  Gross  income  of  farmers — All  gains,  profits  and  in- 
come derived  from  the  sale  or  exchange  of  farm  products,  whether 
produced  on  the  farm  or  purchased  and  resold,  shall  be  included 
in  the  return  of  income  for  the  year  in  which  the  products  were 
actually  marketed  and  sold,  unless  an  inventory  is  used.  In 
the  case  of  the  sale  of  machinery,  and  of  animals  purchased 
as  draft  or  work  animals  or  solely  for  breeding  purposes  and 
not  for  resale,  any  excess  over  the  cost  thereof  reduced  by  all 
sums  theretofore  deducted  for  depreciation  shall  be  included  as 
gross  income  in  preparing  the  taxpayer's  return.  Where  farm 
produce  is  exchanged  for  merchandise,  groceries  or  mill  products, 
the  market  value  of  the  article  or  product  received  in  exchange 
is  to  be  returned  as  income.  Eents  received  in  crop  shares 
shall  be  returned  as  of  the  year  in  which  the  crop  shares  are 


(r /••'••  .S-.S-   Income 

•e<l   to  money   or  a   money  equivalent.      If  a  farmer   is   en- 

i    in    producing  -crops   which   take   more   than   a   year   from 

of    planting   to   the   time   of   gathering   and    dis.po.sing, 

income    therefl^Wtt    may    he    conmir.ed    upo.n    the    crop    basis: 

but.   hi  ai.iy  Mich  c.jise  the  entire  cost  of  producing  {.lie  -crop  must 

lie  taken  us  a   deduction  in  the  year  in  which  the  gross  income 

from  the  crop  is  realized.     When  live  stock  purchased  is  sold,  its 

is  t<>  bo  deducted  from  the  sale,,  price  in  ascertaining  the 

.amount  of  gain  or  profit  to  be  returned  for  tax  purposes.     If, 

•however,  an   iiivesilory  is  used  the  cost  price  of  the  article  sold 

iniM't  not  he  taken   as  an  additional  deduction  in  the  return  of 

income,    as   such   cost   price  will   be   reflected   in   the   inventory. 

As   herein   used    the   term   (i  farm 7'    embraces   the   farm  in   the 

;arily    accepted    sense    and    includes   stock,    dairy,   poultry, 

fruit  and  truck  farms,  also  plantations,  ranches  and  all  land  used 

for   farming   operations.      All    taxpayers  that   cultivate,   operate 

or  manage  farms  for  gain  or  profit,  either  as  owners  or  tenants, 

;v!    farmers.      A    person    cultivating   or   operating   a 

roc  .'•cation  or  pleasure,  the  result  of  which  is  a  continual 

•  year  to  year,  is  not  regarded  as  a  farmer.     (Sec  further, 

\   md  JSL) 

;r.  p,l.  Sale  of  stock  and  rights — When  shares  of  stock  in 
si  corporation  are  sold  from  lots  purchased  at  different  times  and 
at  different  prices  and  the  identity  of  the  lots  can  not  be  deter- 
mined, the  stock  sold  shall  be  charged  against  the  earliest  pur- 
<'h;i.-c  of  such  stock.     The  excess  of  the  amount  realized  on  the 
sale  over  the  cost  of  the  stock,  or  its  fair  market  value  as  of 
January    1,    H»l<),    if   purchased  before   that   date,    will   he   the 
profit  to  he  accounted  for  as  income.     In  the  case  of  stock  re- 
ceived as  a  stock  dividend,  and  in  the  case  of  stock  in  respect 
•of  which   any  such   dividend  w-as   paid,  the  cost  of  each  share 
of   such    stock   shall    be   ascertained    as   specified    in    article   f>4. 
re  common  stock   is  received   as  a  bonus  with  the  purchase 
of   preferred    stock   or   bonds,   the   total   purchase   price   shall   "be 
•portioned  between  the  stock  and  securities  purchased  for 
thr»    ?>rm>o«e   of    determining    the    portion    of    the    consideration 
1o  vac?!  class  of  stock  or  securities  and  so  represent- 
eoM,   but    if   that   should  be   impracticable   in    any   case, 
5 


524  Gross  Income  Defined:     Inclusions 

no  profit  on  any  subsequent  sale  of  any  part  of  the  stock  or 
securities  will  be  realized  until  out  of  the  proceeds  of  sales 
shall  have  been  recovered  the  total  cost.  (Article  96.)  The  en- 
tire amount  realized  from  the  sale  of  rights  to  subscribe  for 
stock  by  a  stockholder  to  whom  such  rights  are  issued,  is  income. 

ART.  32.  Sale  of  patents  and  copyrights — A  taxpayer  disposing 
of  patents  or  copyrights  by  sale  should  determine  the  profit, 
or  loss  arising  therefrom  by  computing  the  difference  between 
the  selling  price  and  the  value  as  of  January  1,  1919,  if  ac- 
quired prior  to  that  date,  or  between  the  selling  price  and  the 
cost,  if  acquired  subsequent  to  that  date.  The  profit  or  loss 
thus  determined  should  be  increased  or  decreased,  as  the  case 
may  be,  by  the  amounts  deducted  on  account  of  depreciation  of 
such  patents  or  copyrights  since  December  31,  1918,  or  since 
the  date  of  acquisition  if  acquired  subsequent  thereto.  (See 
article  177.) 

ART.  33.  Sale  of  good  will — Any  profit  or  loss  resulting  from 
an'  investment  in  good  will  can  be  taken  only  when  the  business, 
or  a  part  of  it,  to  which  the  good  will  attaches  is  sold,  in  which 
case  the  profit  or  loss  will  be  determined  upon  the  basis  of  the 
cost  of  the  assets,  including  good  will,  or  their  fair  market  value 
as  of  January  1,  1919,  if  acquired  prior  thereto.  If  nothing 
was  paid  for  good  will  acquired  on  or  after  January  1,  1919, 
no  deductible  loss  is  possible,  although,  on  the  other  hand,  upon 
the  sale  of  the  business  there  may  be  a  profit.  It  is  immaterial 
that  good  will  may  never  have  been  carried  on  the  books  as  an 
asset,  but  the  burden  of  proof  is  on  the  taxpayer  to  establish 
the  cost  or  fair  market  value  on  January  1,  1919,  of  the  good 
will  sold. 

ART.  34.  Sale  of  personal  property  on  installment  plan.— 
Dealers  in  personal  property  ordinarily  sell  either  for  cash, 
or  on  the  personal  credit  of  the  buyer,  or  on  the  installment 
plan.  Occasionally  a  fourth  type  of  sale  is  met  with,  in  \rhich 
the  buyer  makes  an  initial  payment  of  such  a  substantial  nature 
(for  example,  a  payment  of  more  than  25  per  cent)  that  the 
sale,  though  involving  deferred  payments,  is  not  one  on  the 
installment  plan.  In  sales  on  personal  credit,  and  in  the 


Gross  Income  Defined:     Inclusions  525 

substantial  payment  type  just  mentioned,  obligations  of  pur- 
chasers are  to  be  regarded  as  the  equivalent  of  cash,  but  a  dif- 
ferent rule  applies  to  sales  on  the  installment  plan.  Dealers 
in  personal  property  who  sell  on  the  installment  plan  usually 
adopt  one  of  four  ways  of  protecting  themselves  in  case  of 
default:  (a)  through  an  agreement  that  title  is  to  remain  in 
the  seller  until  the  buyer  has  completely  performed  his  part 
of  the  transaction;  (b)  by  a  form  of  contract  in  which  title  is 
conveyed  to  the  purchaser  immediately,  but  subject  to  a  lien 
for  the  unpaid  portion  of  the  purchase  price;  (c)  by  a  present 
transfer  of  title  to  the  purchaser,  who  at  the  same  time  exe- 
cutes a  reconveyance  in  the  form  of  a  chattel  mortgage  to  the 
seller;  or  (d)  by  conveyance  to  a  trustee  pending  performance  of 
the  contract  and  subject  to  its  provisions.  The  general  purpose 
and  effect  being  the  same  in  all  of  these  plans,  it  is  desirable  that 
a  uniformly  applicable  rule  be  established.  The  rule  prescribed 
is  that  in  the  sale  or  contract  for  sale  of  personal  property  on  the 
installment  plan,  whether  or  not  title  remains  in  the  vendor  until 
the  property  is  fully  paid  for,  the  income  to  be  returned  by  the 
vendor  will  be  that  proportion  of  each  installment  payment  which 
the  gross  profit  to  be  realized  when  the  property  is  paid  for  bears 
to  the  gross  contract  price.  Such  income  may  be  ascertained 
by  taking  that  proportion  of  the  total  payments  received  in  the 
taxable  year  from  installment 'sales  (always  including  payments 
received  in  the  taxable  year  on  account  of  sales  effected  in 
earlier  years  as  well  as  those  effected  in  the  taxable  year)  which 
the  gross  profit  to  be  realized  on  the  total  installment  sales  made 
during  the  taxable  year  bears  to  the  gross  contract  price  of  all 
such  sales  made  during  the  taxable  year.  Where  a  change  is 
made  to  this  method  of  computing  net  income  the  taxpayer's 
balance  sheet  should  be  adjusted  conformably  as  of  the  date  when 
the  change  is  effected.  If  for  any  reason  the  vendee  defaults 
in  any  of  his  installment  payments  and  the  vendor  repossesses 
the  property,  the  entire  amount  received  on  installment  payments, 
less  the  profit  already  returned,  will  be  income  of  the  vendor 
for  the  year  in  which  the  property  was  repossessed,  and  the  prop- 
erty repossessed  must  be  included  in  the  inventory  at  its  original 
cost  to  himself,  less  proper  allowance  for  damage  and  use,  if  any. 


.~»L)'''  (Iroxs  Income  Defined:     Inclusions 

If  the  veiidoi1  chooses  as  a  matter  of  consistent  practice  to  treat 
tbe  abl^gatiGBfl  of  purchasers  as  the  equivalent  of  cash,  such  a 
course  is  permissible.  If  sales  during  prior  years  contain  a 
different  percentage  of  ])rorit  than  those  of  the  taxable  year,  or 
if  for  any  other  reason  corrections  are  required  to  produce  a\  more 
accurate  result,  they  can  be  made  as  of  the  end  of  the  taxable 
year. 

Airr.  35.  Sale  of  real  estate  in  lots. —  AVhere  a  tract  of  land  is 
purchased  with  a  view  to  dividing  it  into  lots  or  parcels  of  ground 
to  be  sold  as  such,  the  entire  fair  market  value  as  of  January  1, 
HUD.  or  the  cost,  if  acquired  subsequent  to  that  date,  shall 
be  -equitably  apportioned  to  the  several  lots  or  parcels  and  made 
a  matter  of  record  in  the  books  of  the  taxpayer,  to  the  end  that 
any  gain  derived  from  the  sale  of  any  such  lots  or  parcels  may 
be  returned  as  income  for  the  year  in  which  the  sale  was  ina<le. 
This  rale  contemplates  that  there  will  be  a  measure  of  gain  or 
loss  in  every  lot  or  parcel  sold,  and  not  that  the  capital  invested 
in  the  entire  tract  shall  be  extinguished,  before  any  taxable  income 
shall  be  returned.  The  sale  of  each  lot  or  parcel  will  be  treated 
as  a  separate  transaction  anil  the  gain  or  loss  will  be  accounted 
for  accordingly. 

ART.    36.  Sale    of   real    estate   involving   deferred   payments — 
Deferred  payment  sales  of  real  estate  ordinarily  fall  into  two 
classes  when   considered  with  respect  to  the  terms   of  sale,    as 
follows : 

(1)  Installment  transactions,  in  which  the  initial  payment  is 
relatively  small   (generally  less  than  one-fourth  of  the  purchase 
price)  and  the  deferred  payments  usually  numerous  and  of  small 
amount.     They  include  (a)  sales  where  there  is  immediate  trans- 
fer of  title  when  a  small  initial  payment  is  made,  the  seller  being 
protected  by  a  mortgage  or  other  lien  as  to  deferred  payments, 
and  (b)  agreements  of  purchase  and  sale  whieh  contemplate  that 
a  conveyance  is  not  to  be  made  at  the  outset,  but  only  after  all 
or  a   substantial  portion  of  the   agreed  installments  have  been 
paid. 

(2)  Deferred  payment  sales  not  on  the  installment  plan,  in 
which  there  is  a  substantial  initial  payment  (ordinarily  not  less 


Gross  Income  Defined:     Inclusions  527 

than  one-fourth  of  the  purchase  price),  deferred  payments  being 
secured  by  a  mortgage  or  other  lien.  Such  sales  are  distinguished 
from  sales  on  the  installment  plan  by  the  substantial  character  of 
the  initial  payment  and  also  usually  by  a  relatively  small  number 
of  deferred  payments. 

In  determining  how  these  classes  shall  be  treated  in  levying 
the  income  tax,  the  question  in  each  case  is  whether  the  income 
to  be  reported  for  taxation  shall  be  based  only  011  amounts  actually 
received  in  a.  taxable  year,  or  on  the  entire  consideration  made 
up  in  part  of  agreements  to  pay  in  the  future. 

ART.  3  7.  Sale  of  real  estate  on  installment  plan —  In  the  two 
kinds  of  transactions  included  in  class  (1)  in  the  foregoing 
article,  installment  obligations  assumed  by  the  buyer  are  not 
ordinarily  to  be  regarded  as  the  equivalent  of  cash,  and  the  vendor 
may  report  as  his  income  from  such  transactions  in  any  year  that 
proportion  of  each  payment  actually  received  in  that  year  which 
the  gross  profit  to  be  realized  when  the  property  is  paid  for  bears 
to  the  gross  contract  price.  If  the  return  is  made  on  this  basis 
and  the  vendor  repossesses  the  property  after  default  by  the 
buyer,  retaining  the  previous  payments,  the  entire  amount  of 
such  payments,  less  the  profit  previously  returned,  will  be  income 
to  the  vendor  and  will  be  so  returned  for  the  year  in  which  the 
property  was  repossessed,  and  the  property  repossessed  must  bo 
included  in  the  inventory  at  its  original  cost  to  himself  (less  any 
depreciation  as  defined  in  articles  17 1  and  172).  If  the  tax- 
payer chooses  as  a  matter  of  settled  practice  consistently  followed 
to  treat  the  obligations  of  the  purchaser  as  equivalent  to  cash  and 
to  report  the  profit  derived  from  the  entire  consideration,  cash 
and  deferred  payments,  as  income  for  the  year  when  the  sale  is 
made,  this  is  permissible.  If  so  treated  the  rule  prescribed  in 
article  38  will  apply. 

ART.  38.  Deferred  payment  sales  of  real  estate  not  on  installment 
plan —  In  class  (2)  in  article  36  the  obligations  assumed  by  the 
buyer  are  much  better  secured  because  of  the  margin  afforded  by 
the  substantial  first  payment,  and  experience  shows  that  the 
greater  number  of  such  sales  are  eventually  carried  out  accord- 
ing to  their  terms.  These  obligations  for  deferred  payments  are 
therefore  to  be  regarded  as  equivalent  to  cash,  and  the  profit 


528  Gross  Income  Defined:     Inclusions 

indicated  by  the  entire  consideration  is  taxable  income  for  the 
year  in  which  the  initial  payment  was  made  and  the  obligations 
assumed.  If  the  buyer  defaults  and  the  seller  regains  title  to  the 
land  by  agreement  or  process  of  law,  retaining  payments  pre- 
viously made,  he  may  deduct  from  his  gross  income  as  a  loss  in 
the  year  of  repossession  any  excess  of  the  amount  previously 
reported  as  income  over  the  amount  actually  received,  and  must 
include  such  real  estate  in  his  inventory  at  its  original  cost  to 
himself  (less  any  depreciation  as  denned  in  articles  171  and  172). 

ART.  39.  Isolated  installment  transactions —  The  provisions  of 
articles  34  to  38,  both  inclusive,  are  applicable  only  to  trans- 
actions by  taxpayers  who  regularly  deal  in  personal  or  real  prop- 
erty upon  the  installment  or  deferred  payment  plan.  Isolated 
transactions  are  not  within  the  scope  of  these  provisions. 

ART.  40.  Annuities  and  insurance  policies.— Annuities  *paid 
under  an  annuity  contract  are  subject  to  tax  to  the  extent  that 
the  aggregate  amount  of  the  payments  to  the  annuitant  exceeds 
any  amounts  paid  by  him  as  consideration  for  the  contract.  An 
annuity  charged  upon  devised  land  is  income  taxable  to  the  an- 
nuitant, whether  paid  by  the  devisee  out  of  the  rents  of  the  land 
or  from  other  sources.  The  devisee  is  not  required  to  return  as 
taxable  income  the  amount  of  rent  paid  to  the  annuitant,  and  he 
is  not  entitled  to  deduct  from  his  taxable  income  any  sums  paid 
to  the  annuitant.  Where  an  insured  receives  under  life  insur- 
ance, endowment  or  annuity  contracts  sums  in  excess  of  the 
premiums  paid  therefor,  such  excess  is  income  for  the  year  of  its 
receipt.  (Article  72.)  Distributions  on  paid-up  policies  which 
are  made  out  of  earnings  of  the  insurance  company  are  in  the 
nature  of  corporate  dividends  and  as  such  are  income  of  an 
individual  subject  to  the  tax. 

ART.  41.   Pension  receipts.  —  Pensions  are  classified  as  follows: 

(1)  Periodical  payments  made  to  persons  retired  from  service 
(a)  after  reaching  a  specified  age,  or  (b)  after  a  stated  period  of 
employment,  or  (c)  on  account  of  disability. 

(2)  Compensation  for  personal  injuries  or  sickness. 

'  Both  classes  of  pensions  may  be  paid  out  of  funds  to  which  the 
recipient  has  contributed,  or  out  of  funds  to  which  the  recipient 
has  made  no  contribution. 


Gross  Income  Defined:     Inclusions  529 

First. —  When  received  by  a  nonresident,  a  pension  of  any  kind 
is  not  taxable  income,  as  it  is  an  annuity  and,  therefore,  exempt 
from  taxation  against  a  nonresident  under  section  359,  sub- 
division 3  of  the  Tax  Law. 

Second. —  When  received  by  a  resident,  a  pension  is  not  taxable 
(a)  when  received  from  the  United  States  Government,  or  (b)  if 
received  as  compensation  for  personal  injuries  or  sickness,  or  for 
accident  or  health  insurance,  or  under  workmen's  compensation 
acts,  or  through  war  risk  insurance,  or  under  any  law  for  the 
benefit  or  relief  of  injured  or  disabled  members  of  the  military 
or  naval  forces  of  the  United  States.  Pensions  arising  upon  re- 
tirement for  disability  are  not  regarded  as  compensation  for  per- 
sonal injuries  within  the  meaning  of  this  paragraph.  Pensions 
received  from  the  New  York  City  Teachers'  Retirement  Fund  are 
exempt  from  taxation.  (Neio  York  City  Charter,  section  1092- W.) 

Third. —  All  other  pensions  received  by  residents  are  taxable. 

Fourth. — If  the  recipient  has  contributed  to  the  fund  out  of 
which  the  pension  is  paid,  the  pension  receipts  are  taxable  only 
when,  and  to  the  extent  that,  they  exceed  the  aggregate  amount  of 
all  payments  or  contributions  made  by  him  to  the  fund. 

ART.  42.  Bents  and  royalties. —  When  improvements  made  by  a 
lessee  become  part  of  the  real  estate,  the  value  of  such  improve- 
ments upon  the  expiration  of  the  existing  term  of  the  lease  is 
income  to  the  lessor.  In  general,  sums  paid  by  a  tenant  for  the 
use  of  property,  although  to  another  than  the  landlord,  are  prop- 
erly to  be  regarded  as  rent  and  constitute  income  of  the  landlord. 
See  further  article  120.  Royalties  on  patents  and  copyrights 
are  income. 

ART.  43?  ForgivenesiTTrf  indebtedness —  The  cancellation  and 
forgiveness  of  indebtedness  is  dependent  upon  the  circumstances 
for  its  effect.  It  may  amount  to  a  payment  of  income  or  to  a  gift 
or  to  a  capital  transaction.  If,  for  example,  an  individual  per- 
forms services  for  a  creditor,  who  in  consideration  thereof  cancels 
the  debt,  income  to  that  amount  is  realized  by  the  debtor  as  com- 
pensation for  his  services  and  a  corresponding  amount  is  de- 
ductible by  the  creditor.  If,  however,  a  creditor  merely  desires 
to  benefit  a  debtor  and  without  any  consideration  therefor  cancels 
the  debt,  the  amount  of  the  debt  is  a  gift  from  the  creditor  to  the 


530  (jross  Income  Defined:     Inclusions 

debtor  and  need  not  be  included  in  the  latter's  gross  income  and 
may  not  be  deducted  by  the  creditor.  If  a  corporation  to  which 
a  stockholder  is  indebted  forgives  the  debt,  the  transaction  has  the 
effect  of  the  payment  of  a  dividend. 

ART.  44.  When  included  in  gross  income. —  Gains,  profits  and 
income  are  to  be  included  in  the  gross  income  for  the  taxable  year 
in  which  they  are  received  by  the  taxpayer,  unless  they  are  in- 
cluded when  they  accrue  to  him  in  accordance  with  the  approved 
method  of  accounting  followed  by  him.  (Articles  77-7..).) 
Lands  which  are  received  as  compensation  for  services  in  one  year, 
the  title  to  which  is  disputed  and  in  a  later  year  adjudged  to  be 
valid,  constitute  income  to  the  grantee  in  the  former  year.  On 
the  other  hand,  a  person  may  sue  in  one  year  on  a  pecuniary  claim 
or  for  property,  but  money  or  property  recovered  on  a  judgment 
therefor  rendered  in  a  later  year  would  be  income  in  the  year  in 
which  received  assuming  that  it  would  have  been  income  in  the 
earlier  year  if  then  received.  This  is  true  of  a  recovery  for 
patent  infringement.  Bad  debts  or  accounts  charged  off  because 
of  the  fact  that  they  were  determined  to  be  worthless,  which  are 
subsequently  recovered,  Avhether  or  not  by  suit,  constitute  income 
for  the  year  in  which  recovered,  regardless  of  the  dale  when  the 
amounts  were  charged  off.  (Articles  123  and  161.) 

ART.  45.  Income  not  reduced  to  possession — Income  which  is 
credited  to  the  account  of  or  set  apart  for  a  taxpayer  and  which 
may  be  drawn  upon  by  him  at  any  time  is  subject  to  tax  for  the 
year  during  which  so  credited  or  set  apart  (unless  previously 
accrued  by  the  taxpayer  and  included  in  his  return  of  income), 
although  not  then  actually  reduced  to  possession.  To  constitute- 
receipt  in  such  a  case  the  income  must  be  credited  to  the  taxpayer 
without  any  substantial  limitation  or  restriction  as  to  the  time 
or  manner  of  payment  or  condition  upon  which  payment  is  to  be 
made.  A  book  entry,  if  made,  should  indicate  an  absolute  trans- 
fer from  one  account  to  another.  If  the  income  is  not  credited, 
but  is-  set  apart,  such  income  must  be  unqualifiedly  subject  to  the 
demand  of  the  taxpayer.  For  example,  where  a  corporation  con- 
tingently credits  its  employees  with  bonus  stock,  but  the  stock  is 
not  available  to  such  employees  until  the  termination  of  five  years 
of  employment,  the  mere  crediting  on  the  books  of  the  corporation 


Gross  Income  Defined:     Inclusions  531 

does  not  constitute  receipt.     The  distinction  between  receipt  and 

accrual  must  be  kept  in  miiul.  In  come  may  accrue  to  the  tax- 
payer and  yet  not  he  subject  to  his  demand  or  capable  of  being 
drawn  on  or  against  by  him. 

ART,  46.  Examples  of  constructive  receipt,—  Where  interest 
coupons  have  matured,  but  have  not  been  cashed,  such  interest, 
though  not  collected  when  due  and  payable,  is  nevertheless  avail- 
able to  the  taxpayer  and  should  therefore  be  included  in  his  gross 
income  for  the  year  during  which  the  coupons  matured  unless 
the  debtor  be  in  default  This1-  is  so  although  the  coupons  are 
exchanged  for  other  property  instead  of  eventually  .being  cashed. 
Dividends  on  corporate  stock  are  subject  to  tax  in  the  year  in 
which  made  payable,  although  not  yet  collected  by  the  stockholder. 
(Tax  Law,  seoUon  359  and  articks  14  and  61.)  The  distribu- 
tive share  of  the  profits  of  a  partner  in  a  partnership  is  re- 
garded as  received  at  the  close  of  the  partnership's  fiscal  year. 
(Tax  Law,  section  36^  and  articles  229  and  230.)  Interest 
credited  on  savings  bank  deposits,  even  though  the  bank  nominally 
has  a  rule,  seldom  or  never  enforced,  that  it  may  require  a  stipu- 
lated number  of  days'  notice  in  advance  of  cashing  depositors' 
('.hecks,  is  income  to  the  depositor  when  credited.  An  amount 
•credited  to  shareholder, s  of  a  building  and  loan  association,  when 
such  credit  passes  without  restriction  to  the  shareholder  has  a 
taxable  status  as  income  for  the  yeai*  of  the  credit.  Where  the 
amount  of  such  accumulation  does  not  become  available  to  the 
shareholder  until  the  maturity  of  a  share,  the  amount  of  any 
share  in  excess  of  the  aggregate  amount  paid  in  by  the  shareholder 
(or  value  011  January  1,  1919,  plus  subsequent  payments)  is 
•me  for  the  year  of  the  maturity  of  the  share. 


GROSS  INCOME  DEFINED:  INCLUSIONS: 
DIVIDENDS 

ART.  61.  Dividends — Dividends  for  the  purpose  of  the  statute 
comprise  any  distribution  in  the  ordinary  course  of  business, 
even  though  extraordinary  in  amount,  made  by  a  domestic  or 
foreign  corporation  to  its  shareholders  out  of  its  earnings  or 
profits.  The  mere  declaration  of  a  dividend  is  not  a  distribution. 
Dividends  are  income  for  the  year  in  which  payable,  regardless 
of  when  the  earnings  or  profits  out  of  which  they  were  paid  were 
accumulated,  except  that  dividends  declared  payable  to  stock- 
holders of  record  prior  to  January  1,  1919,  are  to  be  excluded 
from  gross  income  even  if  received  on  or  after  January  1,  1919. 
(Article  79.)  Although  interest  on  United  States  'bonds  and 
certain  other  obligations  is  not  taxable  when  received  by  a  cor- 
poration, upon  amalgamation  with  other  funds  of  the  cor- 
poration such  income  loses  its  identity  and  when  distributed  to 
stockholders  in  dividends  is  taxable  to  the  same  extent  as  other 
dividends.  See  further  article  46. 

ART.  62.  Dividends  paid  in  property —  Dividends  paid  in 
securities  or  other  property  (other  than  its  own  stock),  in  which 
the  earnings  of  a  corporation  have  been  invested,  are  income  to 
the  recipients  to  the  amount  of  the  fair  market  value  of  such 
property  when  receivable  by  the  stockholders.  A  dividend  paid 
in  stock  of  another  corporation  is  not  a  stock  dividend.  Where 
a  corporation  declares  a  dividend  in  stock  of  another  corporation, 
setting  aside  the  stock  to  be  so  distributed  and  notifying  the 
stockholders  of  its  action,  the  income  arising  to  the  recipients  of 
such  stock  is  its  fair  market  value  at  the  time  the  dividend  be- 
comes payable.  Scrip  dividends  are  subject  to  tax  in  the  year 
in  which  the  warrants  are  issuable  to  the  stockholders. 

ART.  63.  Stock  dividends — A  dividend  pafd  in  stock  of  the 
corporation  is  income  to  the  amount  of  the  fair  market  value  of 
the  stock  received  as  a  dividend.  But  stock  distributions  made 
out  of  surplus  when  there  are  no  earnings  or  profits  are  free 
from  tax  as  dividends.  (See  article  66.)  Stock  dividends  paid 
from  earnings  or  profits  received  by  a  fiduciary  and  retained  as  an 

[532] 


Gross  Income  Defined:     Dividends  533 

accretion  to  the  estate  under  the  terms  of  the  will  or  trust  are 
income  to  the  estate. 

ART.  64.  Sale  of  stock  received  as  a  dividend. —  For  the  purpose 
of  ascertaining  the  gain  or  loss  derived  from  the  sale  of  stock 
of  a  corporation  received  subsequent  to  December  31,  1918,  as  a 
dividend  or  from  the  sale  of  the  stock  in  respect  of  which  such 
dividend  was  paid,  the  cost  of  each  share  of  new  stock  is  the 
quotient  of  the  sum  of  (a)  the  cost  of  the  old  stock  or  its  value 
on  January  1,  1919,  if  acquired  prior  thereto,  plus  (b)  the  valua- 
tion at  which  the  new  stock  was  returnable  as  income,  divided- by 
the  number  of  old  and  new  shares. 

ART.  65.  Distribution  in  liquidation —  So-called  liquidation  or 
dissolution  dividends  by  corporations  during  dissolution  are  not 
dividends  within  the  meaning  of  the  statute,  and  amounts  so  dis- 
tributed are  to  be  regarded  as  payments  for  the  stock  of  the  dis- 
solved corporation.  Any  excess  so  received  over  the  cost  of  his 
stock  to  the  stockholder,  or  over  its  fair  market  value  as  of  Janu- 
ary 1,  1919,  if  acquired  prior  thereto,  is  a  taxable  profit.  A  dis- 
tribution in  liquidation  of  the  assets  and  business  of  a  corporation, 
which  is  a  return  to  the  stockholder  of  the  value  of  his  stock 
upon  a  surrender  of  his  interest  in  the  corporation,  is  distinguish- 
able from  a  dividend  paid  by  a  going  corporation  out  of  current 
earnings  or  accumulated  surplus  when  declared  by  the  directors 
in  their  discretion,  which  is  in  the  nature  of  a  recurrent  return 
upon  the  stock. 

ART.  66.  Distribution  from  depletion  or  depreciation  reserve 

A  reserve  set  up  out  of  gross  income  by  a  corporation  and  main- 
tained for  the  purpose  of  making  good  any  loss  of  capital  assets 
on  account  of  depletion  or  depreciation  is  not  a  part  of  its  surplus 
out  of  which  ordinary  dividends  may  be  paid.  A  distribution 
made  from  such  a  reserve  Avill  be  considered  a  liquidating  divi- 
dend and  will  constitute  taxable  income  to  a  stockholder  only  to 
the  extent  that  the  amount  so  received  is  in  excess  of  the  cost  or 
fair  market  value  as  of  January  1,  1919,  of  his  shares  of  stock. 
N"o  distribution,  however,  will  be  deemed  to  have  been  made 
from  such  a  reserve  except  to  the  extent  that  the  amount  paid 
exceeds  the  surplus  and  undivided  profits  of  the  corporation.  In 
general,  any  distribution  made  by  a  corporation  other  than  out 


Income  Defined:     Dividends 

•of  earnings  or  profits  is  to  be  regarded  as  a  return  to  the  stock- 
holder of  part  of  the  capital  represented  by  his  shares  of  stock, 
iind  .upon  a  subsequent  sale  of  such  stock  his  profit  will  be  the 
excess  of  the  selling  price  over  the  cost  of  the  stock  or  its  fair 
market  value  ;is  of  January  1,  1919,  after  applying  on  such  cost 
or  value  the  jjmouut  of  any  such  capital  distribution. 


GROSS  INCOME  DEFINED:  EXCLUSIONS 

ART.  7L  What  exchicled  from  gross  income —  Gross  income 
excludes  the  items  specifically  exempted  by  section  359  of  the 
Tax  Law.  Such  tax-free  income  should  not  be  included  in  the 
return  of  income  and  need  not  he  mentioned  in  tho  return,  except 
where  information  regarding  it  is  specifically  called  for.  The 
exclusion  of  such  income  should  riot  be  confused  with  the  reduc- 
tion of  income  by  the  application  of  allowable  deductions  or 
exemptions.  (Tax  Law,  sections  360  and  36^  and  article  11.) 

ART.  72.  Proceeds  of  insurance —  fa)  Upon  the  death  of  an 
insured  the  proceeds  of  his  life  insurance  policies,  whether  paid;' 
to  his  esta'e  or  to  individual  beneficiaries,  direHly  or  in  trust, 
arc  excluded  from  the  gross  income  of  the  beneficiary.  (Tax 

.  xcftinji.  /M«9.)  (b)  During  his  life  only  so  much  of  tke 
amount  received  by  an  insured  under  life,  endowment  or  annuity 
contracts  as  represents  a  return,  without  interest,  of  the  value 
thereof  on  January  1,  1919,  plus  the  premiums  paid  by  him 
thereafter,  is  excluded  from  his  gross  income.  (Article  40-) 
(c)  The  amounts  received  by  an  insured  or  his  estate  or  other 
ries  through  accident  or  health  insurance  or  under  work- 

'a  compensation  acts  as  compensation  for  personal  injuries; 
or  sickness  an*  excluded  from  the  gross  income  of  the  insured^ 
his  estate  and  other  beneficiaries.  Any  damage  recovered  by 
suit  or  agreement  on  account  of  such  injuries  or  .sickness:  aue 
similarly  excluded  from  the  gross  income  of  the  individual  injured 
or  sick,,  or  of  his  estate  or  other  beneficiaries  entitled,  to  receive- 
such  damages.  Amounts  received  from  any  allotments,  family- 
allowances,  compensation,  or  death  or  disability  insurance  payable 
under  the  War  ll'Lsk  Insurance  Act  of  September  -.  1917,  as. 
amended,  are  excluded  from  gross  income. 

AKT.  7'*.  Gifts  and  bequests. —  M'onev  and  real  or  personal 
property  received  as-  gifts,  or  received  under  a  will  or  under 
statutes  of  descent  and  distribution,  are  exempt  from  tax, 
although  the  income  therefrom  derived  from  investment,  sale  or 
otherwise  is  not..  (Tax  Law,  section  3~><J,  ami  article*  23,  .'/.? 
<ni<J  03.}  An  amount  of  principal  paid  under  a  marriage  settle- 

[535] 


I  Gross  Income  Defined:     Exclusions 

merit  is  a  gift.  Neither  alimony  nor  an  allowance  based  on  a 
separation  agreement  is  included  in  gross  income,  nor  are  they 
allowable  deductions.  (Article  125.) 

ART.  74.  Interest  exempt  from  tax. —  Among  income  exempt 
from  tax  is  interest  upon  the  obligations  of  the  United  States 
or  its  possessions;  or  securities  issued  under  the  provisions  of 
the  Federal  Farm  Loan  Act  of  July  17,  1916;  or  bonds  issued 
by  the  war  finance  corporation ;  or  the  obligations  of  the  State  of 
New  York  or  of  any  municipal  corporation  or  political  subdivision 
thereof:  or  investments  upon  which  the  tax  provided  for  in 
section  331  of  the  Tax  Law  has  been  paid  between  June  1,  1917, 
and  May  14,  1919,  during  the  period  of  years  for  which  such 
tax  shall  have  been  paid.  (Tax  Law,  section  359.)  How- 
ever, the  income  from  securities  (1)  upon  which  the  investment 
tax  was  paid  after  May  14,  1919,  or  (2)  upon  which  the  secured 
debt  tax  or  the  mortgage  tax  was  paid,  is  not  exempt.  The  term 
"  political  subdivision  "  denotes  any  division  of  the  State  made 
by  the  proper  authorities  thereof  acting  within  their  constitutional 
powers  for  the  purpose  of  carrying  out  a  portion  of  those  functions 
of  the  State  which  by  long  usage  and  the  inherent  necessities  of 
government  have  always  been  regarded  as  public.  Political  sub- 
divisions of  the  State,  within  the  meaning  of  the  exemption, 
include  special  assessment  districts  so  created,  such  as  road,  water, 
sewer,  gas,  light,  drainage,  school  and  similar  districts  and  divi- 
sions. The  purchase  by  the  State  or  any  political  subdivision 
thereof  of  property  subject  to  a  mortgage  does  not  render  the 
debt  an  obligation  of  the  State,  or  of  such  political  subdivision, 
and  the  interest  upon  it  does  not  become  exempt  from  taxation, 
whether  or  not  the  purchaser  assumes  the  payment  of  the  debt. 

ART.  75.  Dividends  and  interest  from  Federal  land  bank  and 
national  farm  loan  association. —  The  income  derived  from  divi- 
dends on  stock  of  Federal  land  banks  and  national  farm  loan 
associations  and  from  interest  on  farm  loan  bonds  is  excluded 
from  gross  income.  (Tax  Law,  section  359.) 

ART.  76.  Dividends  from  federal  reserve  banks —  The  dividends 
received  on  the  stock  of  federal  reserve  banks  are  excluded  from 
gross  income.  Dividends  paid  by  member  banks,  however,  are 
treated  like  dividends  of  ordinary  corporations. 


Gross  Income  Defined:     Exclusions  537 

ART.  77.  Income  of  foreign  consular  officers —  The  income  of 
foreign  ambassadors  and  ministers  from  investments  in  bonds  and 
stocks  and  from  interest  on  bank  balances,  and  the  fees  of  foreign 
consuls-general,  consuls,  vice-consuls-general,  vice-consuls,  deputy 
consuls-general,  deputy  consuls  and  consular  agents,  who  are  not 
citizens  of  the  United  States,  are  excluded  from  gross  income, 
but  income  of  such  foreign  officials  from  any  business  carried  on 
by  them  in  the  State  of  New  York  would  be  taxable.  The  com- 
pensation of  citizens  of  the  United  States  who  are  officers  or 
employees  of  a  foreign  government  is,  however,  not  exempt  from 
tax. 

ART.  78.  Compensation  received  from  the  United  States — 
Salaries,  wages  and  other  compensation  received  from  the  United 
States  by  officials  or  employees  thereof,  whether  in  a  civilian 
capacity  or  in  the  military  or  naval  service,  including  the  fees 
and  commissions  of  receivers  and  referees  appointed  by  Federal 
courts,  are  exempt  from  taxation  and  should  be  excluded  from 
gross  income.  The  salaries,  wages  and  other  compensation  of  per- 
sons engaged  in  the  operation  of  railroads,  telegraphs,  telephones 
and  cables  during  the  period  of  federal  control  and  operation  are 
regarded  as  paid  by  the  United  States,  and  likewise  exempt  from 
taxation.  The  amount  received  must,  however,  be  reported  on  the 
return  of  income,  and  must  be  subtracted  from  the  personal 
exemption.  (Article  210,  and  Tax  Law,  section  359,  subdivision 
1-f,  and  362,  subdivision  3.) 

ART.  79.  Income  accruing  prior  to  January  1,  1919 —  Property 
held  by  the  taxpayer  on  January  1,  1919,  is  capital.  Included 
in  this  capital  are  all  claims,  whether  evidenced  by  writing  or  not, 
and  all  interest  which  had  accrued  thereon  before  that  date. 
Interest  accruing  on  or  after  that  date  is  taxable  income.  Wliere 
an  interest-bearing  claim  contracted  prior  to  January  1,  1919, 
is  paid  in  whole  or  in  part  after  that  date,  any  gain  derived  from 
the  conversion  of  the  claim  into  money  is  taxable.  The  amount 
of  such  gain  is  the  excess  of  the  proceeds  of  the  claim  (both 
principal  and  interest),  exclusive  of  any  interest  accrued  since 
December  31,  1918  (but  such  interest  must  be  returned  as  in- 
come), over  the  fair  market  value  of  the  claim  as  of  January  1, 
1919  (both  principal  and  interest  then  accrued).  In  the  case 


53&  Gross  Income  Defined.:     Exduxwnx 

of  an  insurance  policy  its  surrender  value  as  of  January  1,  1919 
may  be  used  as  a  basis  for  the  purpose  of  ascertaining  the  gaiii 
derived  from  the  sale  or  other  disposition  of  such  policy.  Where 
services  were  rendered  prior  to  January  1,  1910,  but  paid  for 
thereafter,,  the  amount  received  for  such  services  ordinarily  should 
not  be  included  in  gross  income.  If,,  however,  the  value  of  such 
a  claim  on  January  1,  1919,  was  less  than  the  amount  received 
subsequent  to  that  date,  the  difference  should  be  included  in  gros^ 
income.  A  claim  for  the  purpose  of  this  article.1  moans  a  right 
existing  unconditionally  on  January  1,  1919,  and  then  assignable, 
whether  presently  payable  or  not.  Interest  does  not,  of  course,, 
include  dividends  on  corporate  stock.  (Tax  Law,  Action  359, 
wnd  article  61.}  Dividends  declared  payable  to  stockholders 
of  record  prior:  to  January  1,  1919,  are  to  be  excluded  from  gross 
income  even  if  received  011  or  after  January  1,  1019. 

ART.  80.  Subtraction  for  redemption  of  trading  stamps — "Wi 
a  taxpayer  for  the  purpose  of  promoting  his  business,  issues  with 
sales  trading  stamps  or  premium  coupons  redeemable  in  merchan- 
dise or  cash,  he  should  in  computing  the  income  fr-nii  such  sales 
subtract  only  the  amount  received  or  receivable  which  will  be 
required  for  the  redemption  of  such  part  of  the  total  issue  of 
trading  stamps  or  premium  coupons  issued  during  the  taxable 
year  as  will  eventually  be  presented  for  redemption.  This 
amount  will  be  determined  in  the  light  of  the  experience  of  the 
taxpayer  in  his  particular  business  and  of  other  users  engaged  in 
similar  business-es.  The  taxpayer  shall  file  for  each  of  the  five 
preceding  years,  excluding  the  taxable  year,  or  such  number  of 
these  years  as  stamps  or  coupons  have  been  issued  by  him,  a  state- 
ment, showing  (a)  the  total  issue  of  stamps  during  each  year, 
(b)  the  total  stamps  redeemed  in  each  year,  and  (c)  the  per- 
centage for  each  year  of  the  stamps  redeemed  to  the  stamps  issued 
in  such  year.  A  similar  statement  shall  also  be  presented:  show- 
ing the-  experience  of  other  users  of  stamps  or  coupons  whose 
experience  is  relied  upon  by  the  taxpayer  to  determine  the- amount 
to  be  subtracted  from  the  proceeds  of  sales.  The  Comptroller  will 
examine  the  basis  used  in  each  return,  and  in  any  case  in  which 
the  amount  subtracted  in  respect  of  such  stamps  or  coupons  is 


(f'ross  Income  Defined:     Exclusions  53D 

found  to  be  excessive  an  amended  return  or  amended  returns 
will  be  required. 

In  the  case  of  an  individual  furnishing  a  co-operative  or  other 
trading  stamp  system  for  others;  h«  shall  compute  his  income  in 
accordance  with  the  smiae  principles  and  .submit  similar  state- 
ments with-  his  return. 


GROSS  INCOME  DEFINED:  BASIS  FOR  DETER- 
MINING GAIN  OR  LOSS 

ART.  91.  Basis  for  determining  gain  or  loss  from  sale,  gift  or 
other  disposition — For  the  purpose  of  ascertaining  the  gain  or 
loss  from  the  sale,  gift,  exchange,  or  other  disposition  of  property 
the  basis  is  (a)  its  fair  market  price  or  value  as  of  January  1, 
1919,  if  acquired  prior  thereto,  or  (b)  if  acquired  on  or  after 
that  date,  its  cost  or  its  approved  inventory  value.  In  both  cases 
proper  adjustment  must  be  made  for  any  depreciation  or  deple- 
tion sustained.  Gifts,  whether  charitable  contributions  or  other- 
wise, constitute  a  disposition  of  property  which  may  result  in  a 
profit  or  loss  to  be  measured  by  the  difference  between  the  cost 
(or  the  value  on  January  1,  1919,  if  acquired  prior  thereto)  and 
the  value  at  the  date  of  the  gift. 

ART.  92.  Fair  market  value"  January  1,  1919 — What  the  fair 
market  price  or  value  of  property  was  on  January  1,  1919,  is  a 
question  of  fact  to  be  established  by  any  evidence  which  will 
reasonably  and  adequately  make  it  appear. 

In  the  case  of  securities  dealt  in  on  a  recognized  exchange,  the 
fair  market  value  on  January  1,  1919,  will  ordinarily  be  deter- 
mined by  the  average  of  the  bid  and  asked  prices  after  closing 
on  December  31,  1918.  In  all  other  cases  other  evidence  of  value 
is  necessary  and  bona  fide  sales  nearest  January  1,  1919,  of  secur- 
ities publicly  or  privately  dealt  in,  or  appraisals  for  inheritance  or 
similar  purposes,  will  be  considered. 

ART.  93.  Sale  of  property  acquired  by  gift  or  bequest In  the 

case  of  property  acquired  by  gift,  bequest,  devise  or  descent  the 
basis  for  computing  gain  or  loss  on  a  sale  is  the  fair  market  price 
or  value  of  the  property  at  the  date  of  acquisition  or  as  of  Janu- 
ary 1,  1919,  if  acquired  prior  thereto.  For  the  purpose  of  deter- 
mining the  profit  or  loss  from  the  sale  of  property  acquired  by 
bequest,  devise,  or  descent  since  December  31,  1918,  its  value  as 
appraised  for  the  purpose  of  the  New  York  transfer  tax,  or  in 
the  case  of  estates  not  subject  to  that  tax  its  value  as  appraised 
in  a  State  court  for  the  purpose  of  State  inheritance  tax,  should 
be  deemed  to  be  its  fair  market  value  when  acquired.  If  there 

[540] 


Basis  For  Determining  Gain  or  Loss  541 

has  been  no  judicial  determination  of  the  fair  market  value  as  of 
the  date  of  acquisition,  such  value  is  a  matter  of  fact  to  be  proved 
by  the  taxpayer.  (Tax  Law,  section  353.) 

ART.  94.  Exchange  of  property. —  Gain  or  loss  arising  from  the 
acquisition  and  subsequent  disposition  of  property  is  realized 
when  as  the  result  of  a  transaction  between  the  owner  and  another 
person  the  property  is  converted  into  casfy  or  into  property 
(a)  that  is  essentially  different  from  the  property  disposed  of 
and  (b)  that  has  a  market  value.  In  other  words,  both  (a)  a 
change  in  substance  and  not  merely  in  form,  and  (b)  a  change 
into  the  equivalent  of  cash,  are  required  to  complete  or  close  a 
transaction  from  which  income  may  be  realized.  By  way  of 
illustration,  if  a  man  owning  ten  shares  of  listed  stock  exchanges 
his  stock  certificate  for  a  voting  trust  certificate,  no  income  is 
realized,  because  the  conversion  is  merely  in  form;  or  if  he  ex- 
changes his  stock  for  stock  in  a  small,  closely  held  corporation, 
no  income  is  realized  if  the  new  stock  has  no  market  value, 
although  the  conversion  is  more  than  formal ;  but  if  he  exchanges 
his  stock  for  a  liberty  bond,  income  may  be  realized,  because  the 
conversion  is  into  independent  property  having  a  market  value. 
The  property  received  in  exchange  may  be  real  estate,  personal 
property,  or  a  chose  in  action.  The  exchange  of  a  so-called  con- 
vertible bond  for  stock  pursuant  to  such  a  privilege  granted  in  the 
bond  will  produce  income  if  the  stock  received  in  exchange  has 
a  fair  market  value  in  excess  of  the  cost  or  fair  market  value  as 
of  January  1,  1919,  of  the  bond.  (Tux  Law,  section  354.) 

ART.  95.  Determination  of  gain  or  loss  from  exchange  of  prop- 
erty—  (a)  The  amount  of  income  derived  in  the  case  of  an  ex- 
change of  property,  as  of  stock  for  a  bond,  is  the  excess  of  the 
fair  market  value  at  the  time  of  exchange  of  the  bond  received 
in  exchange  over  the  original  cost  of  the  stock  exchanged  for  it, 
or  over  the  fair  market  price  or  value  of  such  stock  as  of  Janu- 
ary 1,  1919,  if  acquired  before  1hat  date.  The  amount  of  income 
derived  from  a  subsequent  sale  of  the  bond  for  cash  is  the  excess 
of  the  amount  so  received  over  the  fair  market  value  of  such 
bond  when  acquired  in  exchange  for  the  stock,  (b)  On  the  other 
hand,  if  the  property  received  in  exchange  is  substantially  the 
same  property  or  has  no  market  value,  then  no  gain  or  loss  is 


542:  /l'/.s-,:.s-  For  Determi-mny  (.ruin  or 

realized,  but  the  new  property  is  to  be  regarded  as  substituted 
ifoiF  tke  old  and  upon  a  sale  of  the  new  properly  the  amount  of 
income  derived  is  the  excess  of  the  amount  so  received  over  th<* 
cost  or  faix  market  value  as  of  January  1,  1919,  of  the  old.  |TW 
LaWj  section  3-o J.), 

ART.   90.  Exchange   for   different  kinds   of  property. —  (^a))  If 
property  is  exchanged  for  two  different  kinds  of  property,,  soak 
as  bonds  and  stock,  the  bonds  having  a  market  value  and  the  ! 
none,  the  value  of  the  bonds  is  to  be  compared  with  the  cc*t  «r 
fair  market  value  as  of  January  1,  1919.  of  tlie  original  prop 
as  the  case  may  be.     If  the  market  value  of  the  bonds  is  less  than 
such  cost  or  value,  the  difference  represents  the  cost  of  the  s- 
If  the  market  value  of  the  bonds  is  greater  than  such  cost  or  v 
the  difference  is  taxable  income  at  the  time  of  the  exchange 
whenever  sold   the  entire  proceeds  of  the  stock  will  be  tax 
(b)    If  properly  is  exchanged  tor  two  different  kinds  of  property, 
such  as  bonds  and  stock,  neither  having  a  market  value,  the  co^t 
or  fair  market  value  as  of  January  1,  1910,  <>1:  the  original  r 
erty  should  }*?  apportioned,   i-f  possible,  l)etween  the   bond's  an.l 
stock  for  the  purpose  of  determining  gain  an  lo^s  oa  subset, 
sales,     if  no  fair  apixTtiraimr-t  is  practicable,  no  profit  on 
subsequent  sale  of  any  part  of  the  bonds  or  stock  is  realized  I 
out  of  the   nro'-rcdc   uf  sale  tluTe  shall  have  been    n-roy. 
entire  cost  or  fair  market  value  as  of  January  .1 .   JD.19,  of  the 
original  property. 

ART.  97.  Exchange  of  property  and  stock —  \Yliere  properi;- 
transferred  to  a  c-orporation  in  exchange  for  its  stock,  the  < 
constitutes    a   dosed   transaction    and    the    former   owner    of   the 
property  realizes  a  gain  or  loss  if  the  fair  market  value  of  the 
stQjek  is  greater  or  less  than  the  cost  or  the  fair  market  value  a>. 
of  January   1.    191!)   (if  acquired  prior  thereto),  of  the  pro  pen  v 

in  exchange.      For  the  rule  applicable  where  a  con 
in    coniief'tion    with    a   reorganization,    merger    or    consolidai 
QBBfoangeri  property  for  stock,  see  article  9 

Airr.  98.  Exchange  of  stock  for  other  stock  of  no  greater  par 
value. —  In  general,  where  two  (or  more)  corporations  unite 
their  properties  by  either  (a)  the  dissolution  of  corporation  B 


/.V   For  Determining  (lain  or  Loss 

fhe  sale  <>f  its  assets  to  corporation  A,  or  (b)  the  sale  of  its 
property  by  B  to  A  and  the  dissolution  of  B,  or  (c)  the  .safe  of  the 
Jtoctk  of  B  1n  A  ;ii)d  the  dissolution  of  J>,  or  (d)  the  merger  of  B 

A.  or   (c)    the  consolidation  of  the  corporations,  no  taxable 

i»3fl»iie  is  received  from  -tine  transaction  by  A  or  B  or  the  stock- 

'»f  either.  provided  the  sole  consideration  received  by  B 

•ts  stockholders  in  (a),  (b),  (c)  and  (d)  is  stock  or  securities 
of  A,  and  by  A  and  B  and  their  stockholders  in  (e)  is  stock  or 
MBHEttiBH  of  the  consolidated  corporation,  in  any  case  of  no 
greater  aggregate  par  or  face  value  than  the  old  stock  and  securi- 

-urrendered.  The  term  "  reorganization,'"  as  used  in  section 
••;."){  of  the  statute,  includes  -cases  of  corporate  readjustment  where 
stockholders  exchange  their  stock  for  the  stock  of  a  holding  cor- 

;  ion,  provided  the  holding  corporation  and  the  original  cor- 
]  oration,  in  which  it  holds  siock.  are  closely  related  and  affiliated. 

died  "  no-par-value  stock''  issued  under  a  statute  or  statutes 
which  require  the  corporation!  to  is:  in  a  certificate  or  on  its 
hooks  -of  account  or  otherwise  an  amount  of  capital  or  an  amount 
of  stock  issued  which  may  not  be  impaired  by  the  distribution  of 

lends,  will  for  the  purpose  of  this  section  be  d-eemed  to  have 
a  -par  value  representing  an  aliquot  part  of  such  amount,  proper 

•.i;t  being  taken  of  any  preferred  stock  issued  with  a  pref- 
erence as  to  principal.  In  the  case  (if  any)  in  which  no  such 
amount  of  capital  or  issued  stock  is  so  required,  "  no-par-value 
sto.c-k  "  received  in  exchange  will  be  regarded  for  purposes  of  this 
section  as  having  in  fact  no  par  or  face  value,  and  consequently 
as  haying  "no  greater  aggregate  par  or  face  value"  than  the 

k  or  securities  exchanged  therefor. 

Airr.  99.  Determination  of  gain  or  loss  from  subsequent  sale. — 
The  .m-w  stock  and  securities  received  as  described  in  the  pre- 
ceding article  take  the  place  of  the  old  stock  and  securities.  For 
ilie  purpose,  therefore,,  of  ascertaining  the  gain  derived  or  loss 
sustained  from  the  subsequent  sale  of  any  stock  or  securities  so 
received,  the  original  cost  to  the  taxpayer  or  the  fair  market  value 
as  of  January  1,  1919,  of  the  stock  or  securities  in  respect  of 
which  the  new  stock  and  securities  were  issued,  less  any  untaxed 
distribution  made  to  the  taxpayer  by  A  out  of  the  former  capital 

urplus  of  B,  or  by  the  consolidated  corporation  out  of  the 


lasis  For  Determining 

former  capital  or  surplus  of  A  or  B,  is  the  basis  for  determining 
the  amount  of  such  gain  or  loss. 

ART.  100.  Exchange  of  stock  for  other  stock  of  greater  par  value. 
—  If  in  the  case  of  any  reorganization,  merger  or  consolidation 
the  aggregate  par  or  face  value  of  the  new  stock  or  securities 
received  is  in  excess  of  the  aggregate  par  or  face  value  of  the 
stock  and  securities  exchanged,  income  will  be  realized  from  the 
transaction  by  the  recipients  of  the  new  stock  or  securities  to  an 
amount  limited  by  (a)  the  excess  of  the  par  or  face  value  of  the 
new  stock  or  securities  over  the  pai"or  face  value  of  the  old  and 
(b)  the  excess  of  the  fair  market  value  of  the  new  stock  or 
securities  over  the  cost  or  fair  market  value  as  of  January  1, 
1919,  of  the  old.  In  other  words,  the  taxable  profit  will  be  (a) 
or  (b)  whichever  is  less.  Upon  a  subsequent  sale  of  the  new 
stock  or  securities  their  cost  to  the  taxpayer  will  be  the  cost  or 
fair  market  value  as  of  January  1,  1919,  of  the  old  stock  and 
securities,  plus  the  profit  taxed  on  the  exchange. 

ART.  101.  ReadjustmentT"of  partnership  interests — When  a 
partner  retires  from  a  partnership,  or  it  is  dissolved,  he  realizes 
a  gain  or  loss  measured  by  the  difference  between  the  price 
received  for  his  interest  and  the  cost  to  him  or  (if  acquired  prior 
thereto)  the  fair  market  value  as  of  January  1,  1919,  of  his 
interest  in  the  partnership,  including  in  such  cost  or  value  the 
amount  of  his  share  in  any  undistributed  partnership  net  income 
earned  since  December  31,  1918.  on  which  the  income  tax  has 
been  paid.  If,  however,  the  partnership  distributes  its  assets  in 
kind  and  not  in  cash,  the  partner  realizes  no  gain  or  loss  until  he 
disposes  of  the  property  received  on  distribution.  Whenever  a 
new  partner  is  received  into  a  partnership,  or  any  existing  part- 
nership is  reorganized,  the  facts  as  to  such  change  or  reorganiza- 
tion should  be  fully  set  forth  in  the  next  return  of  income,  in 
order  that  the  Comptroller  may  determine  whether  any  gain  or 
loss  has  been  realized  by  any  partner.  But  see  also  article  94. 


DEDUCTIONS  ALLOWED:  BUSINESS  EXPENSES 

ART.  111.:  Business  expenses. —  Business  expenses  (whether 
subtracted  from  total  receipts  in  computing  gross  income  or 
deducted  from  gross  income  in  computing  net  income)  include 
all  items  entering  into  what  is  ordinarily  known  as  the  cost 
of  goods  sold,  together  with  selling  and  management  expenses, 
except  such  classes  of  items  as  are  treated  in  articles  136-190 
under  "  Deductions  Allowed."  Among  the  items  to  be  treated  as 
business  expenses  are  material,  labor,  supplies  and  repairs 
in  the  case  of  a  manufacturer,  while  a  merchant  would 
include  his  purchases  of  goods  bought  for  resale.  In  either 
case  the  amount  to  be  taken  as  a  deduction  in  any  year  should  be 
determined  by  taking  into  consideration  the  inventory  at  the 
beginning  and  end  of  the  year.  Other  items  that  may  be  included 
as  business  expenses  are  reasonable  compensation  for  the  services 
of  officers  and  employees,  advertising  and  other  selling  expenses. 
A  taxpayer  is  entitled  to  deduct  all  the  ordinary  and  necessary 
expenses  paid  in  carrying  on  his  business  from  his  gross  income 
from  whatever  source.  Expenses  in  earning  income  which  is  not 
taxable  do  not  constitute  allowable  deductions  in  computing  net 
income  from  other  sources  which  are  taxable  under  the  law.  In 
the  case  of  a  nonresident  taxpayer  the  ordinary  and  necessary 
expenses  which  may  be  deducted  are  those  paid  in  connection 
with  income  arising  from  sources  within  the  state  only.  (Tax 
Law,  section  360,  and  articles  4^2  and  481 .) 

ART.  112.  Cost  of  materials — Taxpayers  carrying  materials 
and  supplies  on  hand  should  include  in  expenses  the  charges  for 
materials  and  supplies  only  to  the  amount  that  they  are  actually 
consumed  and  used  in  operation  during  the  year  for  which  the 
return  is  made,  provided  that  the  cost  of  such  material  and  sup- 
plies has  not  been  taken  into  account  in  determining  the  net 
income  for  any  previous  year.  If  a  taxpayer  carries  materials  or 
supplies  on  hand  for  which  no  record  of  consumption  is  kept  or 
of  which  physical  inventories  at  the  beginning  and  end  of  the  year 
are  not  taken,  it  will  be  permissible  for  the  taxpayer  to  include 
in  his  expenses  and  deduct  from  gross  income  the  total  cost  of 
18 

[545] 


Deductions 


lowet 


xpenses 


such  supplies  and  materials  as  were  purchased  during  the  year 

for  which  the  return  is  made,  provided  the  not  income  is  clearly 
reflected  by  this  method. 

AST.  113.  Repairs — The  cost  -of  incidental  repairs  which 
•neither  materially  add  to  the  value  of  the  property  nor  appreciably 
prolong  its  life,  but  keep  it  in  an  ordinarily  efficient  operating 
condition,  may  be  deducted  as  expense,  provided  the  plant  or 
property  account  is  not  increased  by  the  amount  of  such  expendi- 
tures. .Repairs  in  the  nature  of  replacements,  to  the  extent  that 
they  arrest  deterioration  and  appreciably  prolong  the  life  of  tke 
property,  should  be  charged  against  the  depreciation  reserve. 

ART.  114.  Professional  expenses. —  A  professional  man  may 
flaiiii  as  deductions  the  cost  of  supplies  used  by  him  in  the  prac- 
tice of  .his  profession,  expenses  paid  in  the  operation,  and  repair 
of  an  automobile  used  in  making  professional  calls,  dues  to  pro- 
fessional societies  and  subscriptions  to  professional  journals,  the 
rent  paid  for  office  rooms,  the  expense  of  the  fuel,  light,  water, 
telephone,  elc.,  used  in  such  offices,  and  the  hire  of  office  assist- 
ants. Amounts  expended  for  books,  furniture  and  professional 
instruments  and  equipment  of  a  permanent  character  are  not 
allowable  deductions,  but  a  proper  allowance  for  the  deprecia- 
tion of  such  capital  assets  may  be  deducted.  (Tax  Law,  section 
-!61.  and  article  125..) 

ART.  fi:>.   Compensation  for  personal  services — Among  the  ordi- 

aiid  necessary  expenses  paid  or  incurred  in  carrying  on  airy 

trade  or  business  may  be  included    ;•    reasonable   allowance   for 

salaries    or    other    compensation    for    persona!    services    actually 

rendered.     The  test  of  deducibility  in  the  case  of  compensation 

payments  is  whether  they  are  reasonable  and  are  in  fact  payments 

•!y  for  services.     This  test  and  its  practical  application  may 

be  further  stated  and  illustrated  as  follows: 

O)  Any  amount  paid  in  the  form  of  compensation,  but  not  in 
as  the  jmrchase  price  of  services,  is  not  deductible.  An 
.sible  salary  may  bo  in  part  payment  for  property.  For 
:ple,  an  owner  may  sell  a  business  to  another,  the  seller  agree- 
ing to  continue  in  the  service  of  the  purchaser.  In  such  a  case 
It  snay  lie  found  that  the  salary  of  the  seller  is  not  merely  for 


Deductions  Allowed:     Business  Expenses  547 

services,  but  in  part  constitutes  payment  for  the  transfer  of  the 
business. 

(2)  The  form  or  method  of  fixing  compensation  is  not  decisive 
as  to  deducibility.     While  any  form  of  contingent  compensation 
invites  scrutiny  as  a  possible  distribution  of  earnings  of  the  enter- 
prise, it  does  not  follow  that  payments  on  a  contingent  basis  are 
to   be   treated   fundamentally   on   any  basis   different   from   that. 

•-•ing  to  compensation  at  a  flat  rate.  Generally  speaking,  if 
contingent  compensation  is  paid  pursuant  to  a  free  bargain  between 
the  enterprise  and  the  individual  made  before  the  services  are 
rendered,  not  influenced  by  any  consideration  on  the  part  of  the 
employer  other  than  that  of  securing  on  fair  and  advantageous- 
terms  the  services  of  the  individual,  it  should  be  allowed  as  a 
deduction  even  though  in  the  actual  working  out  of  the  contract 
it  may  prove  to  be  greater  than  the  amount  which  would  ordi- 
narily be  paid. 

(3)  In  any  event  the  allowance  for  compensation  paid,  to  be 
deductible,  may  not  exceed  what  is  reasonable  in  all  the  circum- 
stances.    It  is  in  general  just  to  assume  that  reasonable  and  true 
compensation  is  only  such  amount  as  would  ordinarily  be  paid 
for  like  services  by  like  enterprises  in  like  circumstances.     The 
circumstances  to  be  taken  into  consideration  are  those  existing  at 
the   d;;tcv  when    the   contract   for   services   was   made,   not   those 
existing  at  the  date  when  the  contract  is  questioned.     (Article  23.} 
The  father  is  legally  entitled  to  the  services  of  his  unemanci- 
pated    minor    children    and    allowances    which    he    gives    them, 

her  such  be  in  consideration  of  services  or  otherwise,  are  not 
allowable  deductions  in  his  return  of  income. 

ART.   1.16.  Treatment  of  excessive  compensation In  the  case 

of  excessive  payments  by  partnerships,   the  amounts  disallowed, 
should  ordinarily  be  treated  as  shares  of  the  profits  of  a  partner- 
ship, except  that  a  payment  for  property  by  an  individual  or  a 
:;ership  should  be  treated  by  the  individual  or  partnership 
;>ital    t  xpenditure   and   by  the   recipient   as   part   of  the 
purchase  prico. 

AKT.  117.  Eomises  to  employees. —  Gifts  or  bonuses  to  em- 
ployees will  constitute  allowable  deductions  from  gross  income 
when  such  payments  are  made  in  good  faith  and  as  additional 
compensation  for  services  actually  rendered  by  the  employees. 


548  Deductions  Allowed:     Business  Expenses 

provided  such  payments,  when  added  to  the  stipulated  salari* 
do  not  exceed  a  reasonable  compensation  for  the  services  ren- 
dered. Donations  made  to  employees  and  others,  which  do  not 
have  in  them  the  element  of  compensation  or  are  in  excess  of 
reasonable  compensation  for  services,  are  considered  gratuities 
and  are  not  deductible  from  gross  income. 

ART.  118.  Traveling  expenses — Traveling  expenses,  as  ordi- 
narily understood,  include  railroad  fares  and  meals  and  lodging. 
If  the  trip  is  undertaken  for  other  than  business  purposes, 
such  railroad  fares  are  personal  expenses  and  such  meals  and 
lodging  are  living  expenses.  If  the  trip  is  on  business,  the 
traveling  expenses  including  railroad  fares,  meals  and  lodging 
become  business  instead  of  personal  expenses.  (a)  If,  then, 
an  individual  whose  business  requires  him  to  travel  receives  a 
salary  as  full  compensation  for  his  services,  without  reimburse- 
ment of  traveling  expenses,  his  traveling  expenses  are  deduct- 
ible from  gross  income.  (b)  If  such  individual  receives  a 
salary  and  is  also  repaid  his  actual  traveling  expenses,  no  part 
of  such  expenses  is  deductible  from  gross  income  and  no  part 
of  such  repayment  is  returnable  as  income,  (c)  If  such  an 
individual  receives  a  salary  and  also  an  allowance  for  meals 
and  lodging,  as,  for  example,  a  per  diem  allowance  in  lieu  of 
subsistence,  any  excess  of  the  cost  of  such  meals  and  lodging  over 
the  allowance  is  not  deductible,  but  any  excess  of  the  allowance 
over  the  actual  expenses  is  taxable  income.  Any  person  who 
receives  a  mileage  allowance  for  railroad  fares  should  return 
as  income  any  excess  of  such  allowance  over  his  actual  expenses 
for  such  fares.  A  payment  for  the  use  of  a  sample  room  at  a 
hotel  for  the  display  of  goods  is  a  business  expense. 

ART.  119.  Pension  payments — Amounts  paid  for  pensions  to 
retired  employees  or  to  tkeir  families  or  others  dependent  upon 
them,  or  on  account  of  injuries  received  by  employees,  and  lump 
sum  amounts  paid  as  compensation  for  injuries,  are  proper  deduc- 
tions as  ordinary  and  necessary  expenses.  Such  deductions  are 
limited  to  the  amount  not  compensated  for  by  insurance  or  other- 
wise. !N"o  deduction  shall  be  made  for  contributions  to  a  pension 
fund  held  by  the  taxpayer,  the  amount  deductible  in  such  case 
being  the  amount  actually  paid  to  the  employee.  When  the 
amount  of  the  salary  of  an  officer  or  employee  is  paid  for  a 


Deductions  Allowed:     Business  Expenses  549 

limited  period  after  his  death  to  his  widow  or  heirs  in  recog- 
nition of  the  services  rendered  by  the  individual,  such  payments 
may  be  deducted.  Salaries  paid  by  employers  during  the  con- 
tinuance of  the  war  to  employees  who  are  absent  in  the  military 
or  naval  service  or  are  serving  the  Government  in  other  ways  at 
a  nominal  compensation,  but  who  intend  to  return  at  the  con- 
clusion of  the  war,  are  allowable  deductions.  (See  article  4.1.) 

ART.  120.  Rentals, —  Rent  for  the  use  of  business  property  is 
a  deductible  expense.  In  the  case  of  a  professional  man  who 
rents  a  property  for  residential  purposes  but  incidentally  re- 
ceives there  clients,  patients  or  callers  in  connection  with  his 
professional  work  (his  place  of  business  being  elsewhere)  no 
part  of  the  rent  is  deductible  as  a  business  expense.  If,  how- 
ever, he  uses  part  of  the  house  for  his  office,  such  portion  of  the 
rent  as  is  properly  attributable  to  such  office  is  deductible. 

Where  a  leasehold  is  acquired  for  a  specified  sum,  the  pur- 
chaser may  take  as  a  deduction  in  his  return  an  aliquot  part 
of  such  sum  each  year,  based  on  the  number  of  years  the  lease 
has  to  run.  Taxes  paid  by  a  tenant  to  or  for  a  landlord  for  busi- 
ness property  are  additional  rent  and  constitute  a  deductible 
item  to  the  tenant  and  taxable  income  to  the  landlord,  the 
amount  of  the  tax  being  deductible  by  the  latter.  The  cost  of 
erecting  buildings  or  permanent  improvements  on  ground  leased 
by  a  taxpayer  is  additional  rental  and  is,  therefore,  a  proper 
deduction  from  gross  income,  provided  such  buildings  and  im- 
provements under  the  terms  of  the  lease  revert  to  the  owner 
of  the  ground  at  the  expiration  of  the  lease.  In  such  a  case, 
the  cost  will  be  prorated  according  to  the  number  of  years  con- 
stituting the  term  of  the  lease.  The  lessee  will  not  be  permitted 
to  deduct  from  gross  income  any  depreciation  with  respect  to 
such  buildings,  but  the  cost  of  incidental  repairs  necessary  to 
keep  them  in  an  efficient  condition  for  the  purposes  of  their 
use  may  be  deducted.  If,  however,  the  life  of  the  improvement 
is  less  than  the  life  of  the  lease,  depreciation  may  be  taken 
by  the  lessee  instead  of  treating  the  cost  as  rent.  (Article  J+2.) 

ART.  121.  Insurance  premiums —  Premiums  for  insurance 
against  fire,  storm,  theft,  accident  or  other  similar  losses  in  the 
case  of  a  business,  including  employer's  liability  and  work- 


550  Deductions  Allowed:     Business  Expenses 


men's  compensation  insurance,  are  deductible  business  expenses. 
Insurance   paid   on   a    dwelling   owned   and   occupied  by  tax- 
payer,   is   a   personal   expense,    and   not   deductible.      Premiums 
paid  for  life  insurance  by  the  insured  are  not  deductible. 

Where  the  taxpayer  pays  premiums  on  an  insurance  policy 
on  the  life  of  an  •employee  or  individual  financially  interested 
in  the  taxpayer's  business,  for  the  purpose  of  protecting-  him- 
self from  loss  in  the  event  of  the  death  of  any  such  person, 
such  premiums  are  not  deductible  from  his  gross  income.  But 
if  the  taxpayer  is  in  no  sense  a  beneficiary  under  such  a  p< 
except  as  he  may  derive  advantage  from  the  increased  efficiency 
of  the  employee,  and  pays  the  premiums  purely  as  reasonable 
additional  compensation  of  such  employee,  they  are  allowable 
deductions.  ( A rticles  115  and  111.) 

ART.  122.  Expenses  of  farmers.— A  farmer  who  operates  a  farm 
for  profit  is  entitled  to  deduct  from  gross  income  as  necessary 
expenses  all  amounts  actually  expended  in  carrying  on  the 
business  of  farming.  The  cost  of  ordinary  tools,  of  short  life 
or  small  cost,  such  as  hand  tools,  including  shovels,  rakes,  etc. 
may  be  included.  The  cost  of  feeding  and  raising  live  stock 
may  be  treated  as  an  expense  deduction,  in  so  far  as  such  cost 
represents  actual  outlay,  but  not  including  the  value  of  farm 
produce  grown  upon  the  farm  or  the  labor  of  the  ; 
Where  a  farmer  is  engaged  in  producing  crops  which  take  more 
than  a  year  from  the  time  of  planting  to  the  proce  *her- 

and    disposal,   -expenses   deducted   may  be   determined   upon 
the  crop  basis,   and  such  deductions  must  be  taken  in  the 
in   which   the   gross    income   from    the    crop   has   been   realized. 
If  a  farm  is  operated  for  recreation  or  pleasure  and  not  on  a 
commercial   basis,    and    if   the   expenses    incurred    in   conne? 
with  the  farm  are  in  excess  of  the  receipts  therefrom,  the  entire 
receipts  from  the  pale  of  products  may  be  ignored  in  rendering 
a  return  of  income,   and   the  expenses'   incurred,  being   I 
as   personal    expenses,   will   not   constitute   allowable   deduct' 
The   cost   of   farm   machinery   and    farm    buildings  represents   a 
capital  investment  and  is  not  an  allowable  deduction  a- 
of  expense.       Amounts   expended   in  the  development  of  i:\ 
orchards    and    ranches    prior   to   the    time   when    the   produ 


Deduction*  Allowed:     Lluxiness  Expenses  .'>">L 

Mat-  i.s  reached  may  be  regarded  as  investments  of  capital.     The 
u>-   expended  in  purchasing  draft  or  work  animals  or  live 
.-to-*!-:  either  for  resale  or  for  breeding  purposes  is  regarded  as 
an  investment  of  capital.     The  purchase  price  of  an  automobile 
even   when  wholly  used   in  carrying  011  farming  operations,   is 
not   deductible,    but   is    regarded   as   an   investment    of   capital. 
The  cost  of  gasoline,   repairs   and  upkeep  of  an  automobile  if 
used  wholly  in  the  business  of  farming  is  deductible  as  an  ex- 
pense;  if  used  partly  for  business  purposes  and  partly  for  the 
•;ire  or  convenience  of  -the  taxpayer  or  his  family,  such  cost 
may  be  apportioned  according  to  the  extent  of  the  use  for  pur- 
j    of  "business   and   pleasure   or   convenience,    and   only   the 
proportion  of  such  cost  justly  attributable  to  business  purposes 
is  deductible  as  a  necessary  expense.     (Article  30.) 

ART.  123.  When  charges  deductible —  Each  year's  return,  so 
f;ir  :is  practicable,  both  as  to  gross  income  and  deductions  there- 
from, should  be  complete  in  itself,  and  taxpayers  are  expected 
to  make  every  reasonable  effort  to  ascertain  the  facts  necessary 
to  make  a  correct  return.  (Articles  11—14  and  71,)  The  ex- 
]  ien-.es,  liabilities  or  deficit  of  one  year  can  not  be  used  to 
reduce  the  income  of  a  subsequent  year.  A  person  making 
returns  on  .an  accrual  basis  has  the  right  to  deduct  all  author- 
ized allowances,  whether  paid  in  cash  or  set  up  as  a  liability, 
and  it  follows  that  if  he  does  not  within  any  year  pay  or  accrue 
certain  of  his  expenses,  interest,  taxes  or  other  charges,  and 
makes  no  deduction  therefor,  lie  can  not  deduct  from  the  income 
of  the  next  or  any  subsequent  year  any  amounts  then  paid  in 
liquidation  of  the  previous  year's  liabilities.  A  loss  from 
theft  or  embezzlement  occurring  in  one  year  and  discovered  in 
another  is  deductible  only  for  the  year  of  its  occurrence.  Any 
amount  paid  pursuant  to  a  judgment  or  otherwise  on  account  of 
damages  for  personal  injuries,  patent  infringement  or  otherwise, 
is  deductible  from  gross  income  when  the  claim  is  put  in  judg- 
ment or  paid,  less  any  amount  of  such  damages  as  may  have  been 
compensated  for  by  insurance  or  otherwise.  If  subsequent 
to  its  occurrence,  however,  a  taxpayer  first  ascertains  the  amount 
of  a  loss  sustained  during  a  prior  taxable  year  which  has  not 
been  deducted  from  the  gross  income,  he  may  render  an  amended 


552  Deductions  Allowed:     Business  Expenses 

return  for  such  preceding  taxable  year,  and  may  file  a  claim  for 
refund  of  the  excess  tax  paid  by  reason  of  the  failure  to  deduct 
such  loss  in  the  original  return.  (Tax  Lmv,  section  374  and 
article  574-) 

ART.  124.  Payments  by  public  utilities —  In  the  case  of  a  pub- 
lic utility  acquired,  constructed,  operated  or  maintained  by  a 
taxpayer  under  contract  with  any  State,  Territory  or  political 
subdivision  thereof,  or  with  the  District  of  Columbia,  containing 
an  agreement  that  a  portion  of  the  net  earnings  of  such  public 
utility  shall  be  paid  to  the  State,  Territory  or  political  subdi- 
vision thereof,  or  the  District  of  Columbia,  the  amount  so  paid 
may  be  deducted  by  the  taxpayer  as  a  necessary  expense  in 
transacting  business.  (Tax  Law,  section  360.) 

ART.  125.  Items  not  deductible — Amounts  paid  for  increasing 
the  capital  value  or  for  restoring  the  depreciated  value  of  prop- 
erty are  not  deductible  from  gross  income.  (Article  171.) 
Amounts  expended  for  securing  a  copyright  and  plates,  which 
remain  the  property  of  the  person  making  the  payments,  are  in- 
vestments of  capital.  The  cost  of  defending  or  perfecting  title 
to  property  constitutes  a  part  of  the  cost  of  the  property  and  is 
not  a  deductible  expense.  The  amount  expended  for  architect's 
services  is  part  of  the  cost  of  the  building.  Commissions  paid  in 
purchasing  securities  are  a  part  of  the  cost  price  of  such  securities. 
Commissions  paid  in  selling  securities  are  an  offset  against  the 
selling  price.  Expenses  of  the  administration  of  an  estate,  such 
as  court  costs,  attorney's  fees  and  executor's  commissions,  are 
chargeable  against  the  corpus  of  the  estate  and  are  not  allowable 
deductions.  Amounts  to  be  assessed  and  paid  under  an  agree- 
ment between  bondholders  or  stockholders  of  a  corporation,  to 
be  used  in  a  reorganization  of  the  corporation,  are  investments 
of  capital  and  are  not  deductible  for  any  purpose  in  returns  of 
income.  An  assessment  paid  by  a  stockholder  of  a  national  bank 
on  account  of  his  statutory  liability  is  similarly  not  deductible. 

Expenses  incurred  by  a  legatee  to  sustain  or  attack  the  validity 
of  a  will  are  not  deductible  expenses. 

Alimony  and  an  allowance  paid  under  a  separation  agreement 
are  not  deductible  from  gross  income.  Personal  and  living 
expenses  are  not  deductible.  (Article  73.) 


DEDUCTIONS  ALLOWED:  INTEREST 

ART.  136.  Interest — A  resident  is  entitled  to  deduct  from 
gross  income  that  proportion  of  the  total  interest  paid  or  accrued 
as  the  amount  of  his  gross  income,  as  denned  in  the  Tax  Law, 
section  359,  bears  to  his  total  gross  income.  His  total  gross 
income  is  his  gross  income,  as  denned  by  the  Tax  Law,  sec- 
tion 359,  plus  his  income  exempt  from  taxation.  A  taxpayer 
shall  not  be  entitled  to  any  deduction  for  interest  paid  or  accrued 
unless  his  return  discloses  his  total  gross  income,  whether  taxable 
or  exempt.  See  article  434  for  interest  deductions  allowable  to 
nonresidents. 

ART.  137.  Interest  on  capital —  Interest  calculated  as  being  a 
charge  against  income  on  account  of  capital  invested  in  the 
business,  but  which  does  not  represent  a  payment  on  an  interest- 
bearing  obligation,  is  not  an  allowable  deduction  from  gross 
income;  that  is  to  say,  the  interest  which  the  money  might 
earn  if  otherwise  invested  is  not  a  deductible  charge  against 

income. 

553 


DEDUCTIONS  ALLOWED:  TAXES 

ART.    14-1.  Taxes. —  Taxes    other   than    income   taxes   paid   or 
:ed  within  the  taxable  year  imposed,  first,  by  the  authority 
re  i'niied.  States,  or  of  any  of  its  possessions,  or,  .second,  by 
the  authority  of  any   State  or  Territory,   or  any  county,   school 
dL-irict,   municipality  or   other  taxing  subdivision  of  any  State 
<;••  Territory,  not  including  those  assessed  against  local  benefits 
kind  tending  to  increase  the  value  of  the  property  assessed, 
;iiixl,  by  the  authority  of  any  foreign  government,  are  deduct- 
ible from  gross  income.     (Tax Law, section 360,)     Postage  is  not 
a  t;;x.     Amounts  paid  to  States  under  secured  debts  laws  in  order 
to    render    securities    tax    exempt    are    deductible.      Autorno 
license  fees  are  ordinarily  taxes. 

ART.  142.  Federal  duties  and  excise  taxes — Import  or  tariff 
Julie?  paid  to  the  proper  customs  officers,  and  business,  license, 
privilege,  excise  and  stamp  taxes  paid  to  internal  revenue  col- 
lectors, are  deductible  as  taxes  imposed  by  the  authority  of  the 
United  States,  provided  they  are  not  added  to  and  made  a  part 
of  the  expenses  of  the  business  or  the  cost  of  articles  of  merchan- 
dise with  respect  to  which  they  are  paid,  in  which  case  th 
cannot  be  separately  deducted. 

AUT.  143.  Taxes  for  local  benefits — So-called  taxes,  more 
properly  assessments,  paid  for  local  benefits,  such  as  street,  side- 
walk and  other  like  improvements,  imposed  because  of  and  meas- 
ured by  some  benefit  inuring  directly  to  the  property  against 
which  the  assessment  is  levied,  do  not  constitute  an  allowable 
deduction  from  gross  income.  A  tax  is  considered  assessed 
airninst  local  benefits  when  the  property  subject  to  the  tax  is 
limited  to  the  property  benefited.  Special  assessments  are  not 
deductible,  even  though  an  incidental  benefit  may  inure  to  the 
public  welfare.  The  taxes  deductible  are  those  levied  for  the 
general  public  welfare  by  the  proper  taxing  authorities  at  a  like 
rate  against  all  property  in  the  territory  over  which  such  authori- 
ties have  jurisdiction.  Assessments  under  the  statutes  of  Cali- 
fornia relating  to  irrigation  and  of  Iowa  relating  to  drainage. 
and  under  certain  statutes  of  Tennessee  relating  to  levees,  are 

[554] 


icy 


Deductions  Allowed:     Taxes  555 

limited  to  property  benefited,  and  when  it  is  clear  that  the  assess- 
ments are  so  limited,  the  amounts  paid  thereunder  are  not  deduct- 
ible as  taxes.  When  assessments  are  made  for  the  purpose  of 
maintenance  or  repair  of  local  benefits,  the  taxpayer  may  deduct 
the  assessments  paid  as  an  expense  incurred  in  business,  if  the 
payment  of  such  assessments  is  necessary  to  the  conduct  of  his 
business.  When  the  assessments  are  made  for  the  purpose  of 
constructing  local  benefits,  the  payments  by  the  taxpayer  are  in 
the  nature  of  capital  expenditures  and  are  not  deductible.  Where 
assessments  are  made  for  the  purpose  of  both  construction  and 
maintenance  or  repairs,  the  burden  is  on  the  taxpayer  to  show 
the  allocation  of  the  amounts  assessed  to  the  different  purposes. 
If  the  allocation  cannot  be  made,  none  of  the  amounts  so  paid 
is  deductible. 

ART.  144.  Inheritance  taxes —  State  inheritance  taxes  paid  by 
the  executor  or  administrator  of  an  estate  of  a  deceased  person, 
which  are  provided  by  law  to  be  deducted  from  the  respective 
legacies  or  distributive  shares,  are  not  allowable  deductions  in 
computing  the  net  income  of  such  estate  subject  to  tax,  even 
though  the  will  contains  a  direction  to  pay  inheritance  taxes  out 
of  the  residue.  An  inheritance  tax  is  upon  the  transfer  of  the 
property  and  not  upon  the  estate  of  the  decedent  or  upon  the 
executor  or  administrator,  although  the  latter  is  required  to  pay 
it.  In  general,  taxes  paid  or  accrued  within  the  year  imposed  by 
the  authority  of  any  State,  or  otherwise,  are  limited  to  those 
imposed  upon  the  taxpayer  and  do  not  include  taxes  paid  by 
him  on  behalf  of  another,  even  though  he  is  required  by  law  to 
make  such  payment.  Since,  moreover,  the  tax  is  imposed  upon 
the  transfer  before  the  property  reaches  the  legatee  or  distributee, 
and  merely  diminishes  the  capital  share  of  the  estate  received 
by  him,  such  tax  is  not  imposed  upon  the  legatee  or  distributee 
and  is  not  an  allowable  deduction  from  his  income.  Similarly. 
Federal  estate  taxes  are  not  deductible. 


DEDUCTIONS  ALLOWED:  LOSSES 

ART.  151.  Losses. —  Losses  sustained  during  the  taxable  year 
and  not  compensated  for  by  insurance  or  otherwise  are  fully 
deductible  (except  by  nonresidents)  if  (a)  incurred  in  the  tax- 
payer's trade  or  business,  or  (b)  incurred  in  any  transaction 
entered  into  for  profit,  or  (c)  losses  of  property  arising  from 
fires,  storms,  shipwreck  or  other  casualty,  or  from  theft.  They 
must  usually  be  evidenced  by  closed  and  completed  transactions. 
In  the  case  of  the  sale  of  assets  the  loss  will  be  the  difference 
between  the  cost  thereof,  less  depreciation  sustained  since  acqui- 
sition, or  the  fair  market  value  as  of  January  1,  1919,  if 
acquired  before  that  date,  less  depreciation  since  sustained,  and 
the  price  at  which  they  were  disposed  of.  (Tax  Law,  section 
and  {articles  31-39  and  91.)  When  the  loss  is  claimed  through 
the  destruction  of  property  by  fire,  flood  or  other  casualty,  the 
amount  deductible  will  be  the  difference  between  the  cost  of  the 
property  or  its  fair  market  value  as  of  January  1,  1919,  if 
acquired  prior  thereto,  and  the  salvage  value  thereof,  after  deduct- 
ing from  the  cost  (or  value  as  of  January  1,  1919,)  the  amount, 
if  any,  which  has  been  or  should  have  been  set  aside  and  deducted 
in  the  current  year  and  previous  years  from  gross  income  on 
account  of  depreciation  and  which  has  not  been  paid  out  in 
making  good  the  depreciation  sustained.  But  the  loss  should  be 
reduced  by  the  amount  of  any  insurance  or  other  compensation 
received.  A  loss  in  the  sale  of  an  individual's  residence  is  not 
deductible.  Losses  in  illegal  transactions  are  not  deductible. 
See  article  435  for  deductions  for  losses  allowable  to  nonresidents. 

ART.  152.  Voluntary  removal  of  buildings —  Loss  due  to  the 
voluntary  removal  or  demolition  of  old  buildings,  the  scrapping 
of  old  machinery,  equipment,  etc.,  incident  to  renewals  and 
replacements  will  be  deductible  from  gross  income  in  a  sum  repre- 
senting the  difference  between  the  cost  of  such  property  demol- 
ished or  scrapped  (or  its  fair  market  value  on  January  1,  1919, 
if.  acquired  prior  thereto)  and  the  amount  of  a  reasonable  allow- 
ance for  the  depreciation  which  the  property  had  undergone  prior 
to  its  demolition  or  scrapping;  that  is  to  say,  the  deductible  loss 
is  only  so  much  of  the  original  cost  (or  value  as  of  January  1, 

[556] 


Deductions  Mloircd:     Low*  557 

1919)  of  the  property,  less  salvage,  as  would  have  remained 
unextinguished  had  a  reasonable  allowance  been  charged  off  for 
depreciation  during  each  year  prior  to  its  destruction.  When  a 
taxpayer  buys  real  estate  upon  which  is  located  a  building  which 
he  proceeds  to  raze  with  a  view  to  erecting  thereon  another  build- 
ing, it  will  be  considered  that  the  taxpayer  has  sustained  no 
deductible  loss  by  reason  of  the  demolition  of  the  old  building, 
and  no  deductible  expense  on  account  of  the  cost  of  such  removal,' 
the  value  of  the  real  estate,  exclusive  of  old  improvements,  being 
presumably  equal  to  the  purchase  price  of  the  land  and  building 
plus  the  cost  of  removing  the  useless  building. 

ART.  153.  Loss  of  useful  value.—  When  through  some  change 
in  business  conditions  the  usefulness  in  the  business  of  some  or 
all  of  the  capital  assets  is  suddenly  terminated,  so  that  the  tax- 
payer discontinues  the  business  or  discards  such  assets  perma- 
nently from  use  in  the  business,  he  may  claim  as  a  loss  for  the 
year  in  which  he  takes  such  action  the  difference  between  the  cost 
the  fair  market  value  as  of  January  1,  1919,  of  any  asset  so 
discarded  (less  any  depreciation  allowances)  and  its  salvage  value 
remaining.     This  exception  to  the  rule  requiring  a  sale  or  other 
isposition  of  property  in  order  to  establish  a  loss  requires  proof 
of  some  unforeseen  cause  by  reason  of  which  the  property  must 
3  prematurely  discarded,  as,  for  example,  where  machinery  or 
r  property  must  be  replaced  by  a  new  invention,  or  where  an 
increase  in  the  cost  of  or  other  change  in  the  manufacture  of  any 
product   makes   it   necessary   to   abandon    such    manufacture,   to 
^hich   special   machinery  is  exclusively  devoted,   or  where  new 
ttion  directly  or  indirectly  makes  the  continued  profitable 
use  of  the  property  impossible.      This  exception  does  not  extend 
a  case  where  the  useful  life  of  property  terminates  solely  as 
isult  of  those  gradual  processes  for  which  depreciation  allow- 
are   authorized.      It  does  not  apply  to   inventories  or  to 
han   capital   assets.       The  exception   applies  to  building 
when    they    are    permanently    abandoned    or    permanently 
oted  to  a  radically  different  use,  and  to  machinery"  only  when 
s  use  as  such  is  permanently  abandoned.     Any  loss  to  be  deduct- 
ible under  this  exception  must  be  charged  off  on  the  books  and 
hilly  explained  in  returns  of  income.     But  see  article  28 


558 


Deductions  Allowed:     Losses 


ART.  15±.  Shrinkage  in  value  of  securities  and  stocks.  —  A 
son  possessing  securities,  such  as  stocks  and  bonds  cannot  ded 
from  gross  income  any  amount  claimed  as  a  loss  on  account  of  the 
shrinkage  in  value  of  such  securities  through  fluctuation  of  the 
market  or  otherwise.  The  loss  allowable  in  such  cases  is  that 
actually  suffered  when  the  securities  mature  or  are  disposed  of. 
See,  however,  article  161.  In  the  case  of  individual  bankers 
or  private  bankers  who  are  subject  to  supervision  by  State  authori- 
ties, and  who  in  obedience  to  the  orders  of  such  supervisory  officers 
charge  off  as  losses,  amounts  representing  an  alleged  shrinkage 
in  the  value  of  property,  the  amounts  so  charged  off  do  not  con- 
stitute allowable  deductions.  The  foregoing  applies  only  to 
owners  and  investors,  and  not  to  dealers  in  securities,  as  to  whom 
see  article  220.  However,  if  stock  of  a  corporation  becomes 
worthless,  its  cost  or  its  fair  market  value  as  of  January  1,  1919, 
if  acquired  prior  thereto,  may  be  deducted  by  the  owner  in  the 
taxable  year  in  which  the  stock  was  ascertained  to  be  worthless 
and  charged  off,  provided  a  satisfactory  showing  of  its  worthless- 
ness  be  made  as  in  the  case  of  bad  debts.  (Article  161.) 

ART.  155.  Losses  of  farmers.  —  Losses  incurred  in  the  operati 
of  farms  as  business  enterprises  are  deductible  from  gross  income. 
If  farm  products  are  held  for  favorable  markets,  no  deduction  on 
account  of  shrinkage  in  weight  or  physical  value  or  by  reason 
of  deterioration  in  storage  shall  be  allowed.  The  total  loss  by 
frost,  storm,  flood  or  fire  of  a  prospective  crop,  or  of  a  crop 
which  has  not  been  sold,  is  not  a  deductible  loss  in  computing  net 
income.  A  farmer  engaged  in  raising  and  selling  stock,  cattle, 
sheep,,  horses,  etc.,  is  not  entitled  to  claim  as  a  loss  the  value  of 
animals  that  perish  from  among  those  animals  that  were  raised 
on  the  farm.  If  live  stock  has  been  purchased  for  any  pur] 
and  afterward  dies  from  disease,  exposure  or  injury,  or  is  killed 
by  order  of  the  authorities  of  a  State  or  the  United  'States,  the 
actual  purchase  price  of  such  stock,  less  any  depreciation  which 
may  have  been  previously  claimed  with  respect  to  such  perished 
live  stock,  and  less  also  any  insurance  or  indemnity  recovered,  mav 
be  deducted  as  a  loss.  The  actual  cost  of  other  property,  less 
depreciation  already  allowed,  destroyed  by  order  of  the  authori- 
ties of  a  State  or  of  the  United  States,  mav  in  like  manner  be 


- 
ion 


Deductions  Allowed:     Losses  559 

claimed  as  a  loss ;  but  if  reimbursement  is  made  by  a  State  or  the 
United  States  in  whole  or  in  part  on  account  of  stock  killed  or 
property  destroyed,  the  amount  received  shall  be  reported  as 
income  for  the  year  in  which  reimbursement  is  made.  In  deter- 
mining the  cost  of  stock  for  the  purpose  of  ascertaining  the 
deductible  loss  there  shall  be  taken  into  account  only  the  purchase 
price,  and  not  the  cost  of  any  feed,  pasturage  or  care  which  has 
been  deducted  as  an  expense  of  operation.  If  gross  income  is 
ascertained  by  inventories,  no  deduction  can  be  made  for  live 
stock  or  products  lost  during  the  year,  whether  purchased  for 
resale  or  produced  on  the  farm,  as  such  losses  will  be  reflected 
in  the  inventory  by  reducing  the  amount  of  live  stock  or  products 
on  hand  at  the  close  of  the  year.  If  an  individual  owns  and 
operates  a  farm,  in  addition  to  being  engaged  in  another  trade, 
business  or  calling,  and  sustains  a  loss  from  such  operation  of 
the  farm,  then  the  amount  of  loss  sustained  may  be  deducted  from 
gross  income  received  from  all  sources,  provided  the  farm  is  not 
operated  for  recreation  or  pleasure.  (Articles  30,  122  and  181.) 


ible 
oba- 

2 

ptcy 


DEDUCTIONS  ALLOWED:  BAD  DEBTS 

ART.  161.  Bad  debts. — An  account  merely  written  down,  o 
debt  recognized  as  wprthless  prior  to  the  beginning  of  the  taxa 
year  is  not  deductible.  Where  all  the  surrounding  and  attend 
circumstances  indicate  that  a  debt  is  worthless  and  uncollectible 
and  that  legal  action  to  enforce  payment  would  in  all  pro 
bility  not  result  in  the  satisfaction  of  -execution  011  a  judgm 
a  showing  of  these  facts  will  be  sufficient  evidence  of  the  wo 
lessness  of  the  debt  for  the  purpose  of  deduction.  Bankrupt 
may  or  may  not  be  an  indication  of  the  worthlessness  of  a  de 
and  actual  determination  of  worthlessness  in  such  a  case  is  so 
times  possible  before  and  at  other  times  only  when  a  settlement 
in  bankruptcy  shall  have  been  had.  Where  a  taxpayer  ascer- 
tained a  debt  to  be  worthless  and  charged  it  off  in  one  year,  the 
mere  fact  that  bankruptcy  proceedings  instituted  against  the 
debtor  are  terminated  in  a  later  year  confirming  the  conclusion 
that  the  debt  is  worthless  will  not  authorize  shifting  the  deduction 
to  such  later  year.  In  the  case  of  debts  existing  prior  to 
January  1,  1919,  only  their  value  on  that  date  may  be  deducted 
upon  subsequently  ascertaining  them  to  be  worthless.  But  see 
article  44.  If  a  taxpayer  computes  his  income  upon  the  basis 
of  valuing  his  notes  or  accounts  receivable  at  their  fair  market 
value  when  received,  which  may  be  less  than  their  face  value,  the 
amount  deductible  •  for  bad  debts  in  any  such  case  is  limited  to 
such  original  valuation, 

'ART.  162.  Examples  of  bad  debts — Worthless  debts  arising 
from  unpaid  wages,  salaries,  rents  and  similar  items  of  taxable 
income  will  not  be  allowed  as  a  deduction  unless  the  income  such 
items  represent  has  been  included  in  the  return  of  income  for  the 
year  in  which  the  deduction  as  a  bad  debt  is  sought  to  be.  made 
or  in  a  previous  yoar.  Only  the  difference  between  the  amount 
received  in  distribution  of  the  assets  of  a  bankrupt  and  the 
amount  of  the  claim  may  be  deducted  as  a  bad  debt.  The  differ- 
ence between  the  amount  received  by  a  creditor  of  a  decedent  in 
distribution  of  the  assets  of  the  decedent's  estate  and  the  amount 
of  his  claim  may  be  considered  a  worthless  debt.  A  purchaser 
»F  accounts  i-ocoivablo  which  cannot  be  collected  and  are  conse- 

[560] 


Deductions  Allowed:     Bad  Debts  561 

quentry  charged  off  the  books  as  bad  debts  is  entitled  to  deduct 
them,  the  amount  of  deduction  to  be  based  upon  the  price  he  paid 
for  them  and  not  upon  their  face  value. 

ART.  163.  Worthless  mortgage  debt — Where  under  foreclosure 
a  mortgagee  buys  in  the  mortgaged  property  and  credits  the 
indebtedness  with  the  purchase  price,  the  difference  between  the 
purchase  price  and  the  indebtedness  will  not  be  allowable  as  a 
deduction  for  a  bad  debt,  for  the  property  which  was  security  for 
the  debt  stands  in  the  place  of  the  debt.  The  determination  of 
loss  in  such  a  situation  is  deferred  until  the  property  is  disposed 
of,  except  where  a  purchase  money  mortgage  is  foreclosed  by  the 
vendor  of  the  property.  (See  article  38.)  Only  where  a  pur- 
chaser for  less  than  the  debt  is  another  than  the  mortgagee  may 
tlio  difference  between  the  debt  and  the  net  proceeds  from  the 
sale  be  deducted  as  a  bad  debt. 

ART.  164.  Worthless  securities. —  Where  bonds  purchased  be- 
fore January  1,  1919.  depreciated  in  value  between  the  date  of 
purchase  and  that  date,  and  were  in  a  later  year  ascertained  to  be 
worthless  and  charged  off,  the  owner  is  entitled  to  a  deduction  in 
that  year  equal  to  the  value  of  the  bonds  on  January  1,  1919. 
Bonds  purchased  since  December  31,  1918,  when  ascertained  to 
be  worthless  may  be  treated  as  bad  debts  to  the  amount  actually 
paid  for  them,  but  not  exceeding  their  amortized  value  if  pur- 
chased at  a  premium.  Bonds  of  an  insolvent  corporation  secured 
only  by  a  mortgage  from  which  on  foreclosure  nothing  is  realized 
for  the  bondholders  are  regarded  as  ascertained  to  be  worthless 
not  later  than  the  year  of  the  foreclosure  sale,  and  no  deduction 
for  such  bad  debt  is  allowable  in  computing  the  bondholder's 
income  for  a  subsequent  year.  To  authorize  a  deduction  for  a 
bad  debt  on  account  of  notes  held  prior  to  January  1,  1919,  their 
value  on  that  date  must  be  established.  (See  articles  154  and  220. ) 


DEDUCTIONS  ALLOWED:  DEPRECIATION 

ART.  171.  Depreciation. — A  reasonable  allowance  for  the  ex- 
haustion, .wear  and  tear  and  obsolescence  of  property  used  in 
the  trade  or  business  may  be  deducted  from  gross  income.  For 
convenience  such  an  allowance  will  usually  be  referred  to  as 
covering  depreciation,  excluding  from  the  term  any  idea  of  a 
mere  reduction  in  market  value  not  resulting  from  exhaustion, 
wear  and  tear  or  obsolescence.  The  proper  allowance  for  such 
depreciation  of  any  property  used  in  the  trade  or  business  is  that 
amount  which  should  be  set  aside  for  the  taxable  year  in  accord- 
ance with  a  consistent  plan  by  which  the  aggregate  of  such 
amounts  for  the  useful  life  of  the  property  in  the  business  will 
suffice,  with  the  salvage  value,  at  the  end  of  such  useful  life  to 
provide  in  place  of  the  property  its  cost,  or  its  value  as  of 
January  1,  1919,  if  acquired  by  the  taxpayer  before  that  date. 

ART.  172.  Depreciable  property —  Hie  necessity  for  a  deprecia- 
tion allowance  arises  from  the  fact  that  certain  property  used 
in  the  business  gradually  approaches  a  point  where  its  usefulness 
is  exhausted.  The  allowance  should  be  confined  to  property  of 
this  nature.  In  the  case  of  tangible  property,  it  applies  to  that 
which  is  subject  to  wear  and  tear,  to  decay  or  decline  from  natural 
causes,  to  exhaustion,  and  to  obsolescence  due  to  the  normal  prog- 
ress of  the  art  or  to  becoming  inadequate  to  the  growing  needs 
of  the  business.  It  does  not  apply  to  inventories  or  to  stock  in 
trade ;  nor  to  land  apart  from  the  improvements  or  physical  devel- 
opment added  to  it.  It  does  not  apply  to  bodies  of  minerals 
which  through  the  process  of  removal  suffer  depletion,  other  pro- 
vision for  this  being  made  in  the  statute.  (Section  360,  sub- 
division  9,  of  the  Tax  Law,  and  -article  190.)  Property  kept  in 
repair  may,  nevertheless,  be  the  subject  of  a  depreciation  allow- 
ance. (Article  113.)  The  deduction  of  an  allowance  for  depre- 
ciation is  limited  to  property  used  in  the  taxpayer's  trade  or 
business.  !STo  such  allowance  may  be  made  in  respect  of  auto- 
mobiles or  other  vehicles  used  chiefly  for  pleasure,  a  building 
used  by  the  taxpayer  solely  as  his  residence,  nor  in  respect  of 
furniture  or  furnishings  therein,  personal  effects,  or  clothing;  but 
properties  and  costumes  used  exclusively  in  a  business,  such 

[562] 


Deductions  Allowed:     Depreciation 

as  a  theatrical  business,  may  be  the  subject  of  a  depreciation 
allowance. 

ART.  173.  Depreciation  of  intangible  property — Intangibles, 
the  use  of  which  in  the  trade  or  business  is  definitely  limited  in 
duration,  may  be  the  subject  of  a  depreciation  allowance. 
Examples  are  patents  and  copyrights,  licenses  and  franchises. 
Intangibles,  the  use  of  which  in  the  business  or  trade  is  not  so 
limited,  will  not  usually  be  a  proper  subject  of  such  an  allowance. 
If,  however,  an  intangible  asset  acquired  through  capital  outlay 
is  known  from  experience  to  be  of  value  in  the  business  for  only 
a  limited  period,  the  length  of  which  can  be  estimated  from 
experience  with  reasonable  certainty,  such  intangible  asset  may 
be  the  subject  of  a  depreciation  allowance,  provided  the  facts  are 
fully  shown  in  the  return  or  prior  thereto  to  the  satisfaction  of 
the  Comptroller.  •No  depreciation  is  allowable  with  respect  to 
good  will,  secret  formulae  or  processes,  trade  names,  trademarks 
or  trade  brands. 

ART.  174.  Capital  sum  recoverable  through  depreciation  allow- 
ance—  The  capital  sum  to  be  replaced  by  depreciation  allowances 
is  the  cost  of  the  property  in  respect  of  which  the  allowance  is 
made,  except  that  in  the  case  of  property  acquired  by  the  tax- 
payer prior  to  January  1,  1919,  the  capital  sum  to  be  replaced 
is  the  fair  market  value  of  the  property  as  of  that  date.  In  the 
absence  of  proof  to  the  contrary,  it  will  be  assumed  that  such 
value  as  of  January  1,  1919,  is  the  cost  of  the  property  less 
depreciation  up  to  that  date.  To  this  sum  should  be  added  from 
time  to  time  the  cost  of  improvements,  additions  and  betterments, 
the  cost  of  which  is  not  deducted  as  an  expense  in  the  taxpayer's 
return,  and  from  it  should  be  deducted  from  time  to  time  the 
amount  of  any  definite  loss  or  damage  sustained  by  the  property 
through  casualty,  as  distinguished  from  the  gradual  exhaustion 
of  its  utility  which  is  the  basis  of  the  depreciation  allowance. 
In  the  case  of  the  acquisition  after  December  31,  1918,  of  a 
combination  of  depreciable  and  nondepreciable  property  for  a 
lump  price,  as  for  example,  land  and  buildings,  the  capital  sum 
to  be  replaced  is  limited  to  that  part  of  the  lump  price  which 
represents  the  value  of  the  depreciable  property  at  the  time  of 
such  acquisition. 


564:  Deductions  Allowed;     Depreciation 

ART.  175.  Method  of  computing  depreciation  allowance —  The 
capital  sum  to  be  replaced  should  be  charged  off  over  the  useful 
life  of  the  property  either  in  equal  annual  installments  or  in 
accordance  with  any  other  recognized  trade  practice,  such  as  an 
apportionment  of  the  capital  sum  over  units  of  production.  What- 
ever plan  or  method  of  apportionment  is  adopted  must  be  reason- 
able and  should  be  described  in  the  return. 

ART.  176.  Modification  of  method  of  computing  depreciation — 
If  it  develops  that  the  useful  life  of  the  property  has  been  under- 
estimated, the  plan  of  computing  depreciation  should  be  modified 
and  the  balance  of  the  cost  of  the  property,  or  its  fair  market 
value  as  of  January  1,  1919,  not  already  provided  for  through 
a  depreciation  reserve  or  deducted  from  book  value,  should  be 
spread  over  the  estimated  remaining  life  of  the  property.  Xo 
modification  of  the  method  should  be  made  on  account  of  fluctua- 
tions in  the  market  value  of  the  property  from  time  to  ^ 
such  as,  on  the  one  hand,  loss  in  rental  value  of  buildings  due 
to  deterioration  of  the  neighborhood,  or,  on  the  other  hand, 
appreciation  due  to  increased  demand.  The  conditions  affecting 
such  market  value  should  be  taken  into  consideration  only  so  far 
as  they  affect  the  estimate  of  the  useful  life  of  the  projx 

ART.  177.  Depreciation  of  patent  or  copyright — In  computing 
a  depreciation  allowance  in  the  case  of  a  patent  or  copyright, 
the  capital  sum  to  be  replaced  is  the  cost  (not  already  deducted 
as  current  expense)  of  the  patent  or  copyright  or  its  fair  market 
value  as  of  January  1.  1919,  if  acquired  prior  thereto.  The 
allowance  should  be  computed  by  an  apportionment  of  the  cost 
of  the  patent  or  copyright  or  of  its  fair  market  value  as  of  Jan- 
uary 1,  1919,  over  the  life  of  the  patent  or  copyright  since  its 
grant,  or  since  its  acquisition  by  the  taxpayer,  or  since  Decem- 
ber 31,  191\S,  as  the  case  may  be.  If  the  patent  or  copyright 
was  acquired  from  the  government,  its  cost  consists  of  the  various 
government  fees,  cost  of  drawings,  experimental  models,  attor- 
ney's fees,  etc.,  actually  paid.  Depreciation  of  a  patent  can  be 
taken  on  the  basis  of  the  fair  market  value  as  of  January  1,  1919, 
only  when  affirmative  and  satisfactory  evidence  of  such  value  is 
offered.  Such  evidence  should  whenever  practicable  be  submitted 
with  the  return.  If  the  patent  becomes  obsolete  prior  to  its 
expiration  such  proportion  of  the  amount  on  which  its  deprecia- 


Deductions  Allowed:     Depreciation  565 

tioii  may  be  based  as  the  number  of  years  of  its  remaining  life 
bears  to  the  whole  number  of  years  intervening  l>e!\v«'n  the  date 
when  it  was  acquired  and  the  date  when  it  legally  expires  may 
be  deducted,  if  permission  so  to  do  is  specifically  secured  from 
the  Comptroller.  Owing  to  the  difficulty  of  allocating  to  a  par- 
ticular year  the  obsolescence  of  a  patent,  such  permission  will 
be  granted  only  if  affirmative  and  satisfactory  evidence  that  the 
obsolescence  occurred  in  the  year  for  which  the  return  is  made 
is  submitted  to  the  Comptroller.  The  fact  that  depreciation  has 
not  been  taken  in  prior  years  does  not  entitle  the  taxpayer  to 
deduct  in  any  taxable  year  a  greater  amount  for  depreciation 
than  would  otherwise  be  allowable.  (See  articles  32  and  123.) 

ART.  178.  Depreciation  of  drawings  and  models — A  taxpayer 
who  has  incurred  expenses  in  his  business  for  designs,  drawings, 
patterns,  models,  or  work  of  an  experimental  nature  calculated 
to  result  in  improvement  of  his  facilities  or  his  product,  may 
at  his  option  deduct  such  expenses  from  gross  income  for  the  tax- 
able year  in  which  they  are  incurred  or  treat  such  articles  as  a 
capital  asset  to  the  extent  of  the  amount  so  expended.  In  the 
latter  case,  if  the  period  of  usefulness  of  any  such  asset  may  be 
estimated  from  experience  with  reasonable  accuracy,  it  may  be 
the  subject  of  depreciation  allowances  spread  over  such  estimated 
period  of  usefulness.  The  facts  must  be  fully  shown  in  the 
return  or  prior  thereto  to  the  satisfaction  of  the  Comptroller. 
Except  for  such  depreciation  allowances  no  deduction  shall  be 
made  by  the  taxpayer  against  any  sum  so  set  up  as  an  asset 
except  on  the  sale  or  other  disposition  of  such  assets  at  a  loss  or 
on  proof  of  a  total  loss  thereof. 

ART.  179.  Charging  off  depreciation — If  regular  books  of 
account  are  kept,  a  depreciation  allowance,  in  order  to  constitute 
an  allowable  deduction  from  gross  income,  should  be  regularly 
charged  off  thereon.  The  particular  manner  in  which  it  shall 
be  charged  off  is  not  material,  except  that  the  amount  measuring 
a  reasonable  allowance  for  depreciation  must  be  either  deducted 
directly  from  the  book  value  of  the  assets  or  preferably  credited 
to  a  depreciation  reserve  account,  which  must  be  reflected  in  the 
annual  balance  sheet.  If  regular  books  of  account  are  not  kept 
by  the  taxpayer,  a  permanent  record  must  be  kept  of  the  facts 
on  which  the  claim  .for  depreciation  is  based.  The  allowance 


566  Deductions  Allowed:     Depreciation 

should  be  computed  and  charged  off  with  express  reference  to 
specific  items,  units  or  groups  of  property,  each  item  or  unit 
being  considered  separately  or  specifically  included  in  a  group 
with  others  to  which  the  same  factors  apply.  The  taxpayer 
should  keep  such  records  as  to  each  item  or  unit  of  depreciable 
property  as  will  permit  the  ready  verification  of  the  factors  used 
in  computing  the  allowance  for  each  year  for  each  item,  unit  or 
group. 

ART.  180.  Closing  depreciation  account —  If  the  use  of  any 
property  in  the  business  is  permanently  discontinued,  although 
no  sale  or  other  disposition  of  the  property  has  taken  place,  a 
determination  of  any  gain  or  loss  may  be  made;  but  any  deduc- 
tion in  respect  of  any  loss  thereon  must  be  disclosed  in  the  tax- 
payer's return  for  the  year  in  which  the  determination  is  made 
and  a  full  statement  of  the  facts  and  the  basis  upon  which  the 
computation  is  calculated  must  be  attached  to  the  return.  Upon 
a  sale  or  other  disposition  of  the  property,  the  consideration 
received  shall  be  compared  with  the  amount  of  the  estimated 
salvage  value  used  in  computing  the  gain  or  loss  as  above  pro- 
vided, and  the  amount  of  the  difference  shall  be  treated  as  a  gain 
or  loss,  as  the  case  may  be,  of  the  year  in  which  the  sale  or  other 
disposition  was  made.  (See  articles  151-158.) 

ART.  181.  Depreciation  in  the  case  of  farmers — A  reasonable 
allowance  for  depreciation  may  be  claimed  on  farm  buildings 
(other  than  a  dwelling  occupied  by  the  owner),  farm  machinery 
and  other  physical  property  including  live  stock  purchased  for 
draft,  dairy  or  breeding  purposes,  but  no  claim  for  depreciation 
on  live  stock  raised,  or  purchased  for  resale,  will  be  allowed. 
Live  stock  purchased  for  draft,  breeding  or  dairy  purposes,  or  for 
any  purpose  other  than  resale,  may  be  included  in  the  inventory 
for  each  year  at  a  figure  which  will  reflect  the  reduction  in  value 
estimated  to  have  occurred  during  the  year  through  increase  of 
age  or  other  causes.  Such  a  reduction  in  value  should  be  based 
on  the  cost  and  estimated  life  of  the  live  stock.  If  an  inventory 
is  not  used,  a  reasonable  allowance  for  depreciation  may  be 
claimed  based  upon  the  cost  of  draft  and  work  animals  and 
animals  kept  solely  for  breeding  purposes  and  not  for  resale. 
(See  articles  30,  122  ami  755.) 


DEDUCTIONS  ALLOWED:  DEPLETION 

ART.  190.  Depletion  of  mines,  oil  and  gas  wells,  natural  deposits 
and  timber — Until  specific  regulations  on  the  subject  of  deple- 
tion are  issued  and  promulgated  by  the  State  Comptroller, 
deductions  for  depletion  will  be  allowed  in  accordance  with  the 
principles  and  rules  adopted  by  the  Commissioner  of  Internal 
Revenue  in  regulations  45,  except  that  the  fair  market  value  as 
of  January  1,  1919,  is  the  basis  for  claims  of  depletion  with 
respect  to  property  acquired  prior  to  that  date,  and  except  also 
that  claims  for  depletion  based  upon  discovery  must  relate  to 
discoveries  by  the  taxpayer  on  or  after  January  1,  1919. 

DEDUCTIONS  ALLOWED:  CHARITABLE  CON- 
TRIBUTIONS 

ART.  201.  Charitable  contributions —  Contributions  or  gifts 
within  the  taxable  year  are  deductible  to  an  aggregate  amount 
not  in  excess  of  15  per  cent  of  the  taxpayer's  net  income  as 
computed  without  the  benefit  of  this  deduction,  if  made  (a)  to 
corporations  or  associations  incorporated  by  or  organized  under 
the  laws  of  the  State  of  New  York  and  operated  exclusively  for 
religious,  charitable,  scientific  or  educational  purposes,  or  for  the 
prevention  of  cruelty  to  children  or  animals,  no  part  of  the  net 
earnings  of  which  inures  to  the  benefit  of  any  private  stockholder 
or  individual,  or  (b)  to  the  special  fund  for  vocational  rehabilita- 
tion under  the  Vocational  Rehabilitation  Act  of  June  27,  1918. 
A  gift  to  a  common  agency  (as  a  war  chest)  for  several  such 
corporations  or  associations  is  treated  like  a  gift  directly  to  them. 
In  connection  with  claims  for  this  deduction  there  shall  be  stated 
011  returns  of  income  the  name  and  address  of  each  organization 
to  which  a  gift  was  made,  and  the  approximate  date  and  the 
amount  of  the  gift  in  each  case.  Where  the  gift  is  other  than 
money,  the  basis  for  calculation  of  the  amount  of  the  gift  shall 
be  the  fair  market  value  of  the  property  at  the  time  given,  but 
the  difference  between  such  value  and  cost  (or  fair  market  value 
on  January  1,  1919,  if  acquired  before  that  date)  shall  be 
returned  as  profit  or  loss  by  the  donor.  (Article  91.)  A  gift 
of  real  estate  to  a  city  to  be  maintained  perpetually  as  a  public 

[567] 


56&         Deductions  Allowed:     Charitable  Contributions 

park  is  not  an  allowable  deduction.      This  article  does  not  appl 
to  gifts' by  partnerships  or  estates  and  trusts.     (Ta<c  Law,  sectio 
360,   subdivision   10,   and   sections   364   and   365,   and   articles 
233  and  251.) 

ART.  202.  Definition  of  religious,  charitable,  scientific  and  educa 
tional  corporations  and  associations — In  order  to  be  deductible 
contributions  must  be  to  a  corporation  or  association:   (a)  inco 
porated  by  or  organized  under  the  laws  of  the  State  of  New  York ; 
(b)   organized  and  operated  exclusively  for  one  or  more  of  the 
specified  purposes;   (c)  no  part  of  its  income  must  inure  to  th 
benefit  of  any  private  stockholder  or  individual. 

Charitable  corporations  include  an  association  for  the  relie 
of  the  families  of  clergymen,  even  though  the  latter  make  a  con 
tribution  to  the  fund  established  for  this  purpose;  or  for  furnish- 
ing the  services  of  trained  nurses  to  persons  unable  to  pay  for 
them ;  or  for  aiding  the  general  body  of  litigants  by  improving  the 
efficient  administration  of  justice.  Educational  corporations  may 
include  an  association  whose  sole  purpose  is  the  instruction  of  the 
public.  This  is  true  of  an  association  to  promote  acquaintance 
with  the  Spanish  language  and  literature,  although  it  has  inci- 
dental amusement  features;  of  an  association  to  increase  k< 
edge  of  the  civilization  of  another  country;  and  of  a  Chautauqmi 
association  whose  primary  purpose  is  to  give  lectures  on  subjects 
useful  to  the  individual  and  beneficial  to  the  community  and 
whose  amusement  features  are  incidental  to  this  purpose.  But 
associations  formed  to  disseminate  controversial  or  partisan  propa- 
ganda are  not  educational  within  the  meaning  of  the  statute. 
Scientific  corporations  include  an  association  for  the  scientific 
study  of  law,  to  the  end  of  improvement  in  its  administration. 


PERSONAL  EXEMPTIONS 

AKT.  205.  Personal  exemption  of  resident  individual An 

unmarried  individual,  or  a  married  individual  not  living  with 
husband  (or  wife),  and  who  is  not  the  head  of  a  family,  is  entitled 
to  a  personal  exemption  of  $1,000,  if  he  is  a  resident  of  the 
State  of  New  York. 

ART.  206.  Personal  exemption  of  head  of  family — A  head  of  a 
family  (resident  of  the  State  of  New  York)  is  entitled  to  a 
personal  exemption  of  $2,000.  A  head  of  a  family  is  a  person 
who  actually  supports  and  maintains  in  one  household  one  or 
more  individuals  who  are  closely  connected  with  him  by  blood 
relationship,  relationship  by  marriage,  or  by  adoption,  and  whose 
right  to  exercise  family  control  and  provide  for  these  dependent 
individuals  is  based  upon  some  moral  or  legal  obligation.  In  the 
absence  of  continuous  actual  residence  together,  whether  or  not 
a  person  with  dependent  relatives  is  the  head  of  a  family  within 
the  meaning  of  the  statute  must  depend  on  the  character  of  the 
separation.  If  a  father  is  absent  on  business  or  at  war,  or  a 
child  or  other  dependent  is  away  at  school  or  on  a  visit,  the  com- 
mon home  being  still  maintained,  the  additional  exemption  applies. 
If,  moreover,  through  force  of  circumstances  a  parent  is  obliged 
to  maintain  his  dependent  children  with  relatives  or  in  a  board- 
ing house  while  he  lives  elsewhere,  the  additional  exemption  may 
still  apply.  A  resident  alien  with  children  abroad  is  not  entitled 
to  the  exemption  of  a  head  of  a  family. 

AKT.  207.  Personal  exemption  of  married  person. — A  married 
on  (resident  of  the  State  of  New  York)  living  with  husband 
(or  wife),  is  entitled  to  a  personal  exemption  of  $2,000  against 
the  aggregate  net  income  of  both  husband  and  wife.  In  the  case 
of  a  married  man  or  married  woman  the  joint  exemption  replaces 
the  individual  exemption  only  if  the  man  lives  with  his  wife  or 
the  woman  lives  with  her  husband.  In  the  absence  of  continuous 
actual  residence  together,  whether  or  not  a  man  or  woman  has 
;i  wife  or  husband  living  with  him  or  her  within  the  meaning 
of  the  statute  must  depend  on  the  character  of  the  separation. 
If  merely  occasionally  and  temporarily  a  wife  is  away  on  a  visit 

[569] 


570  Personal  Exemptions 

or  a  husband  is  away  on  business,  the  joint  home  being  main- 
tained, the  additional  exemption  applies.  The  unavoidable 
absence  of  a  wife  or  husband  at  a  sanatorium  or  asylum  on  account 
of  illness  does  not  preclude  claiming  the  exemption.  If,  however, 
the  husband  voluntarily  and  continuously  makes  his  home  at  one 
place  and  the  wife  hers  at  another,  they  are  not  living  together 
for  the  purpose  of  the  Tax  Law,  irrespective  of  their  personal 
relations.  A  resident  alien  with  a  wife  residing  abroad  is  not 
entitled  to  the  joint  exemption. 

ART.  208.  Exemption  for  dependents — A  resident  taxpayer 
receives  an  exemption  of  $200  for  each  person  (other  than  hus- 
band or  wife),  whether  related  to  him  or  not  and  whether  living 
with  him  or  not,  dependent  upon  and  receiving  his  chief  support 
from  the  taxpayer,  provided  the  dependent  is  either  (a)  under 
eighteen  years  of  age  or  (b)  incapable  of  self-support  because 
defective.  The  exemption  is  based  upon  actual  financial  depend- 
ency and  not  mere  legal  dependency  and  may  accrue  to  a  taxpayer 
who  is  not  the  head  of  a  family.  But  a  father  whose  children 
receive  half  or  more  of  their  support  from  a  trust  fund  or  other 
separate  source  is  not  entitled  to  the  exemption. 

ART.  209.  Date  determining  exemption —  The  status  of  the  tax- 
payer during  the  taxable  year  determines  his  right  to  an  addi- 
tional exemption  and  to  exemption  for  dependents.  If  at  any 
time  during  the  taxable  year  he  is  the  head  of  a  family,  the  per- 
sonal exemption  of  $2,000  may  be  taken.  If  he  is  the  chief  sup- 
port of  a  dependent  who  is  under  eighteen  years  of  age,  or 
incapable  of  self-support  because  mentally  or  physically  defective, 
the  exemption  of  $200  may  be  taken.  A  husband  and  wife  living 
together  during  the  taxable  year  may  receive  but  one  personal 
exemption  of  $2,000,  divisible  as  they  please,  against  their  aggre- 
gate net  income.  If  an  individual  dies  during  the  taxable  year, 
his  executor  or  administrator  in  making  a  return  for  him  is 
entitled  to  claim  his  full  personal  exemption  according  to  the 
status  of  the  decedent.  If  a  husband  or  wife  so  dies  and  the 
joint  personal  exemption  is  used  by  the  executor  or  administrator 
in  making  a  return  for  the  decedent,  an  undiminished  personal 
exemption  according  to  the  status  of  the  survivor  during  his 
(or  her)  taxable  year  subsequent  to  such  death,  may  be  claimed 
in  the  survivor's  return. 


Personal  Exemptions  571 

ART.  210.  Personal  exemption  of  officer  or  employee  of  the 
United  States — A  taxpayer  receiving  salary,  wages,  or  other  com- 
pensation from  the  United  States,  whether  as  civilian  or  in  the 
military  or  naval  service,  exempt  from  taxation  under  the  tax  law 
shall  be  entitled  to  only  so  much  of  the  personal  exemption  pro- 
vided for  in  this  section  as  is  in  excess  of  the  aggregate  amount 
of  such  salaries,  wages  or  other  compensation.  If  the  compensa- 
tion received  from  the  United  States  is  in  excess  of  the  personal 
exemption,  no  personal  exemption  is  allowable.  (Tax  Law,  sec- 
tion 362,  subdivision  8.) 


INVENTORIES 

ART.  216.  Need  of  inventories. —  In  order  to  reflect  the 
income  correctly,  inventories  at  the  beginning  and  ending  of  each 
year  are  necessary  in  every  case  in  which  the  production,  pur- 
chase or  sale  of  merchandise  is  an  income-producing  factor.  The 
inventory  should  include  raw  materials  and  supplies  on  hand 
that  have  heen  acquired  for  sale,  consumption  or  use  in  productive 
processes,  together  with  all  finished  or  partly  finished  goods. 
Title  to  the  merchandise  included  in  the  inventory  should  be 
vested  in  the  taxpayer  and  goods  merely  ordered  for  future 
delivery  and  for  which  no  transfer  of  title  has  been  effected  should 
be  excluded.  The  inventory  should  include  merchandise  sold 
only  if  title  has  not  passed  to  the  purchaser;  but  if  title  has 
passed  to  the  purchaser  and  such  goods  have  been  included  in 
the  sales  of  the  taxable  year,  they  should  not  be  taken  in  the 
inventory.  It  should  also  include  merchandise  purchased, 
although  not  actually  received,  to  which  title  has  passed  to  the 
purchaser.  In  this  regard  care  should  be  exercised  to  take  into 
the  accounts  all  invoices  or  other  charges  in  respect  of  merchan- 
dise properly  included  in  the  inventory,  but  which  is  in  transit 
or  for  other  reasons  has  not  been  reduced  to  physical  possession. 

ART.  217.  Valuation  of  inventories. —  Inventories  should  be 
valued  at  (a)  cost  or  (b)  cost  or  market  whichever  is  lower. 
Whichever  basis  is  adopted  must  be  applied  to  each  item  and  not 
merely  to  the  total  of  the  inventory;  that  is,  if  for  instance  basis 
(b)  is  adopted,  the  value  of  each  item  in  the  inventory  will  be 
measured  by  market  if  that  is  lower  than  cost,  or  by  cost  if  that 
is  lower  than  market.  Whichever  of  the  above  methods  is  adopted 
for  1919,  changes  can  be  made  thereafter  only  after  permission  is 
secured  from  the  Comptroller.  Inventories  should  be  recorded  in 
a  legible  manner  and  properly  computed  and  summarized,  and 
should  be  preserved  as  a  part  of  the  accounting  records  of  the 
taxpayer.  Goods  taken  in  the  inventory  which  have  been  so 
intermingled  that  they  cannot  be  identified  with  specific  invoices 
will  be  deemed  to  be  the  goods  most  recently  purchased. 

Airr.  218.  Inventories  at  cost — Cost  means: 

(1)   In  the  case  of  merchandise  purchased,  the  invoice  price 

[572] 


1  n  re  >i  lories  573 

less  trade  or  other  discounts  except  strictly  cash  discounts  ap- 
proximating a  fair  interest  rate,  which  may  be  deducted  or  not 
at  the  option  of  the  taxpayer  provided  a  consistent  course  is  fol- 
lowed. To  this  net  invoice  price  should  be  added  transportation 
or  other  necessary  charges  incurred  in  acquiring  possession  of 
the  goods. 

(2)  In  the  case  of  merchandise  produced  by  the  taxpayer, 
(a)  the  cost  of  raw  materials  and  supplies  entering  into  or  con- 
sumed in  connection  with  the  product,  (b)  expenditures  for 
direct  labor,  (c)  indirect  expenses  incident  to  and  necessary  for 
the  production  of  the  particular  article,  including  in  such  indirect 
expenses  a  reasonable  proportion  of  management  expenses,  but 
not  including  any  cost  of  selling  or  return  on  capital  whether 
by  way  of  interest  or  profit.  In  any  industry  in  which  the  usual 
rules  for  computation  of  cost  of  production  are  inapplicable, 
costs  may  be  approximated  upon  such  basis  as  may  be  reasonable 
and  in  conformity  with  established  trade  practice  in  the  particu- 
lar industry. 

ABT.  219.  Inventories  at  market — Market  means  the  current 
bid  price  prevailing  at  the  date  of  the  inventory  for  the  par- 
ticular merchandise,  and  is  applicable  to  goods  purchased  and 
on  hand  and  to  basic  materials  in  goods  in  process  of  manufac- 
ture and  in  finished  goods  on  hand,  exclusive,  however,  of  goods 
on  hand  or  in  process  of  manufacture  for  delivery  upon  firm  sales 
contracts  at  fixed  prices  entered  into  before  the  date  of  the 
inventory.  Where  no  open  market  quotations  are  available  the 
taxpayer  must  use  such  evidence  of  a  fair  market  price  at  the 
date  or  dates  nearest  the  inventory  as  may  be  available  to  him, 
such  as  specific  transactions  in  reasonable  volume  entered  into 
in  good  faith,  or  compensation  paid  for  cancellation  of  contracts 
for  purchase  commitments.  The  burden  of  proof  will  rest  upon 
the  taxpayer  in  each  case  to  satisfy  the  Comptroller  of  the  cor- 
rectness of  the  prices  adopted. 

ABT.  220.  Inventories  by  dealers  in  securities A  dealer  in 

securities,  who  in  his  books  of  account  regularly  inventories  un- 
sold securities  on  hand  either  (a)  at  cost  or  (b)  at  cost  or  market 
value,  whichever  is  lower,  may  make  his  return  upon  the  basis  upon 
which  his  accounts  are  kept:  provided  that  a  description  of  the 


574 


Inventories 


method  employed  shall  be  included  in  or  attached  to  the  return,  that 
all  the  securities  must  be  inventoried  by  the  same  method,  and  that 
such  method  must  be  adhered  to  in  subsequent  years,  unless 
another  be  authorized  by  the  Comptroller.  For  the  purpose  of 
this  rule  a  dealer  in  securities  is  a  merchant  of  securities,  whether 
an  individual  or  partnership,  with  an  established  place  of  busi- 
ness, regularly  engaged  in  the  purchase  of  securities  and  their 
resale  to  customers,  that  is,  one  who  as  a  merchant  buys  securities 
and  sells  them  to  customers  with  a  view  to  the  gains  and  profits 
that  may  be  derived  therefrom.  If  such  business  is  simply  a 
branch  of  the  activities  carried  on  by  such  person,  the  securities 
inventoried  as  here  provided  may  include  only  those  held  for 
purposes  of  resale  and  not  for  investment.  Taxpayers  who  buy 
and  sell  or  hold  securities  for  investment  or  speculation,  and  not 
in  the  course  of  an  established  business,  and  officers  of  corpora- 
tions and  members  of  partnerships,  who  in  their  individual 
capacities  buy  and  sell  securities,  are  not  dealers  in  securities 
within  the  meaning  of  this  rule. 


PARTNERSHIPS 

ART.  226.  Partnerships. —  Partnerships  as  such  are  not  subject 
to  taxation  under  the  Tax  Law,  but  are  required  to  make  returns 
of  income.  (Tax  Law,  section  368,  and  articles  230  and  231.) 
Individuals  carrying  011  business  in  partnerships,  are,  however, 
taxable  upon  their  distributive  shares  of  the  net  income  of  such 
partnerships,  whether  distributed  or  not,  and  are  required  to 
include  such  distributive  shares  in  their  returns.  The  net  in- 
come of  a  partnership  shall  be  computed  in  the  same  manner  and 
on  the  same  basis  as  the  net  income  of  an  individual,  except  that 
the  deduction  of  charitable  contributions  is  not  permitted.  Resi- 
dent individuals  who  are  members  of  partnerships  may  be  re- 
quired by  the  Comptroller  to  make  a  return  stating  the  gross 
receipts  and  the  net  gains  or  profits  of  the  partnership  for  the  tax- 
able year.  (Tax  Law.  section  364,  and  articles  11-14-) 

A  resident  member  of  a  partnership  must  include  in  his  return 
his  distributive  share  of  the  profits  of  such  partnership  even 
though  it  do  no  business  within  the  State  of  New  York  and  derive 
no  income  from  sources  within  the  State. 

Every  distribution  (or  credit)  shall  be  deemed  to  be  a  ratable 
distribution  of  income  of  each  kind  received  during  the  year. 

ART.  227.  Limited  partnerships. — All  limited  partnerships, 
whether  of  the  type  authorized  by  the  statutes  of  New  York  and 
Illinois  or  of  Pennsylvania  and  Michigan  and  most  other  states, 
are  partnerships  and  not  corporations  within  the  meaning  of  the 
statute. 

ART.  228.  Association  distinguished  from  partnership An  or- 
ganization, the  partnership  interests  in  which  are  not  transfer- 
able without  the  consent  of  the  members,  is  a  partnership  and 
not  an  association.  Any  so-called  association  or  organization  not 
taxable  under  article  9-a  of  the  Tax  Law  and  not  exempted  under 
such  article,  will  be  regarded  as  a  partnership  within  the  meaning 
of  the  Income  Tax  Law.  The  members  of  such  partnerships  will 
be  required  to  include  in  their  returns  their  share  of  the  profits 
of  such  partnerships,  whether  distributed  or  undistributed.  Such 
partnerships  will  be  required  to  file  returns  in  the  same  manner 
as  all  other  partnerships. 

ART.  229.  Distributive  shares  of  partners —  The  distributive 
share  of  the  net  income  of  a  partnership  which  a  partner  is 

[575] 


Partnerships 

required  to  include  in  his  return  is  his  proportionate  share  of  the 
net  income  of  the  partnership,  either  (a)  for  the  taxable  year 
upon  the  basis  of  which  the  partner's  net  income  is  computed,  or 
(b)  if  the  partner's  net  income  is  computed  upon  the  basis  of  a 
taxable  year  different  from  that  upon  the  basis  of  which  the  net 
income  of  the  partnership  is  computed,  for  the  taxable  year  of  the 
partnership  ending  within  the  taxable  year  upon  the  basis  of 
which  the  partner's  net  income  is  computed.  Amounts  earned 
and  distributed  to  a  partner  by  a  partnership  after  the  end  of 
its  taxable  year  and  before  the  end  of  his  corresponding  taxable 
year  should  be  accounted  for  both  by  the  partnership  and  by  the 
partners  in  their  returns  for  their  next  succeeding  taxable  years. 

ART.  230.  Partnership  returns — Every  partnership  deriving 
income  (a)  from  property  owned  within  the  State  of  jSTew  York, 
or  (b)  from  a  business,  trade,  profession  or  occupation  carried  on 
within  the  State  of  Xew  York  must  make  a  return  of  income, 
regardless  of  the  amount  of  its  gross  or  net  income  and  regardless 
of  the  residence  of  the  partners.  The  return  shall  be  on  Form  204 
and  shall  be  sworn  to  by  one  of  the  partners.  If  the  partnership 
(a)  has  a  nonresident  member,  and  (b)  carries  on  business  (as 
"business  carried  on"  is  defined  in  article  415)  both  within 
and  without  the  State  of  Xew  York,  its  return  shall  be  accom- 
panied by  a  schedule  of  apportionment  on  Form  204a.  Such 
return  shall  be  made  for  the  fiscal  year  of  the  partnership,  that  is, 
for  its  annual  accounting  period  (fiscal  year  or  calendar  year  as 
the  case  may  be),  irrespective  of  the  taxable  years  of  the  partners. 
(Tax  Law,  section  368.)  If  the  partnership  makes  any  change 
in  its  accounting  period  it  shall  make  its  return  in  accordance 
with  the  provisions  of  the  Tax  Law,  section  370,  and  article  529. 

ART.  231.  Contents  of  partnership  return —  The  return  of  a 
partnership  shall  state  specifically  (a)  the  items  of  its  gross 
income  enumerated  in  section  359  of  the  Tax  Law;  (b)  the 
deductions  enumerated  in  section  360  other  than  the  deductions 
provided  in  paragraph  10  of  that  section;  (c)  the  names  and 
addresses  of  the  individuals  who  would  be  entitled  to  share  in 
the  net  income  of  the  partnership  if  distributed;  (d)  the  amount 
of  the  distributive  share  of  such  net  income  of  each  such  indi- 
vidual; and  (e)  such  other  facts  as  are  required  by  Form  204. 
(See  also  Tax  Law,  section  371,  and  articles  541-544.) 


577 

ART.  232.  Taxation  of  partners  in  partnership  with  fiscal  year 
ending  in  1919 — If  the  fiscal  year  of  a  partnership  began  in  the 
calendar  year  1918  and  ended  in  the  calendar  year  1919,  the  tax 
for  the  calendar  year  1919  applies  to  the  amount  of  each  part- 
ner's distributive  share  of  such  net  income  of  the  partnership 
attributable  to  the  calendar  year  1919.  The  amount  of  each 
partner's  distributive  share  of  the  net  income  of  the  partnership 
for  such  fiscal  year  attributable  to  the  calendar  year  1919  is 
found  by  determining  the  net  income  of  the  partnership  for  its 
entire  fiscal  year  in  accordance  with  the  law  and  the  distributive 
share  thereof  of  each  partner,  and  then  taking  such  proportion 
of  that  distributive  share  as  the  part  of  the  fiscal  year  falling 
within  the  calendar  year  1919  bears  to  the  full  fiscal  year.  (Tax 
Law,  section  364,  and  article  527.) 

ART.  233.  Charitable  contributions  by  partnerships. —  In  com- 
puting the  net  income  of  partnerships,  charitable  contributions 
may  not  be  deducted.  Each  partner  may,  however,  take  as  a 
deduction  on  his  personal  return  his  proportionate  share  of  the 
charitable  contributions  made  by  the  partnership,  subject  to  the 
limitations  contained  in  article  201. 
19 


ESTATES  AND  TRUSTS 

ART.  240.  Fiduciary —  "  Fiduciary  "  is  a  term  which  applies 
to  all  persons  that  occupy  positions  of  peculiar  confidence  and 
trust  toward  others,  such  as  guardians,  trustees,  executors,  admii 
istrators,  receivers,  conservators  or  any  other  person,  whet 
individual  or  corporate,  acting  in  any  fiduciary  capacity  for 
person,  trust  or  estate.  A  committee  of  the  property  of  an 
competent  person  is  a  fiduciary.  (Tax  Law,  section  865.) 

ART.  241.  Fiduciary  distinguished  from  agent. —  There  may 
a  fiduciary  relationship  between  an  agent  and  a  principal, 
the  word  "  agent "  does  not  denote  a  fiduciary.  A  fiduci; 
relationship  cannot  be  created  by  a  power  of  attorney.  An  agent 
having  entire  charge  of  property,  with  authority  to  effect 
execute  leases  with  tenants  entirely  on  his  own  responsibility  an< 
without  consulting  his  principal,  merely  turning  over  the  net 
profits  from  the  property  periodically  to  his  principal  by  virtue 
of  authority  conferred  upon  him  by  a  power  of  attorney,  is  not 
a  fiduciary  within  the  meaning  of  the  statute.  In  cases  where 
no  legal  trust  has  been  created  in  the  estate  controlled  by  the 
agent  and  attorney  the  liability  to  make  a  return  rests  with  the 
principal. 

ART.  242.  Classification  of  income  of  estates  and  trusts For 

the  purpose  of  the  income  tax,  income  of  estates  and  trusts 
be  divided  into  two  classes: 

First. —  Income,  the  tax  upon  which  is  imposed  upon  the  estate 
or  trust  and  the  tax  paid  by  the  fiduciary,  consisting  of 

(a)  Income  received  by  estates  of  deceased  persons  during  tl 
period  of  administration  or  settlement  except  as  provided  in  uf  " 
below ; 

(b)  Income  accumulated  in  trust  for  the  benefit  of  unborn  or 
unascertained  persons  or  persons  with  contingent  interests; 

(c)  Income  held   in  trust   for  future  distribution  under  the 
terms  of  the  will  or  trust. 

Second. —  Income,  the  tax  upon  which  is  imposed  upon  and 
paid  by  the  beneficiaries,  consisting  of 

(d)  Income  which  is  to  be  distributed  to  beneficiaries  periodi- 
cally whether  or  not  at  stated  intervals; 

[578] 


-  For 

may 


Estates  and  Trusts  579 

(e)  Income  collected  by  the  guardian  of  an  infant  to  be  held 
or  distributed  as  the  court  may  direct; 

(f)  Income  of  the  estate  of  any  deceased  person  which  during 
the  period  of  administration  or  settlement  is  properly  paid  or 
credited  to  any  legatee,  heir  or  other  beneficiary. 

ART.  243.  Resident  and  nonresident  estates  and  trusts  distin- 
guished—  For  the  purpose  of  the  income  tax  estates  and  trusts 
are  (a)  resident  estates  and  trusts  or  (b)  nonresident  estates  and 
trusts.  If  the  decedent  was  at  the  time  of  his  death  a  resident 
of  New  York  State,  his  estate  is  a  resident  estate  and  any  trust 
created  by  his  will  is  a  resident  trust.  If  the  decedent  was  at  the 
time  of  his  death  a  nonresident,  his  estate  is  a  nonresident  estate 
and  any  trust  created  by  his  will  is  a  nonresident  trust.  If  the 
creator  of  a  trust  was  at  the  time  the  trust  was  created  a  resident 
of  New  York  State,  the  trust  is  a  resident  trust.  Conversely, 
if  the  creator  of  a  trust  was  at  the  time  the  trust  was  created  a 
nonresident  of  the  State,  the  trust  is  a  nonresident  trust.  The 
residence  or  situs  of  the  fiduciary  does  not  in  any  sense  control  in 
the  classification  of  estates  and  trusts  as  resident  or  nonresident. 

ART.  244.  Income  of  estates  and  trusts  taxed  to  fiduciary —  In 
the  case  of  estates  or  trusts  falling  within  subdivisions  a,  b  and  c 
of  article  242,  the  fiduciary  is  required  to  make  return  on 
Form  200  or  201  as  prescribed  in  article  246  and  pay  the  tax 
on  the  taxable  income  of  such  estate  or  trust.  The  imposition  of 
the  tax  is  not  affected  by  the  fact  that  an  ultimate  beneficiary 
may  be  a  person  not  subject  to  tax.  Where  under  the  terms 
of  the  will  or  deed,  the  trustee  may  in  his  discretion  distribute 
the  income  or  accumulate  it,  the  amount  actually  distributed  is 
taxable  to  the  beneficiaries  and  only  the  amount  accumulated  is 
taxable  to-  the  fiduciary. 

A  statutory  allowance  paid  a  widow  out  of  the  corpus  of  the 
estate  is  not  deductible  from  gross  income.  As  an-  intestate's 
real  estate  does  not  pass  to  his  administrator,  upon  a  sale  by  the 
heirs,  whether  before  or  after  settlement  of  the  estate,  each  heir 
is  taxed  individually  on  any  profit  derived.  If  such  an  estate 
or  trust  is  a  resident  as  defined  in  article  243  its  income  from  all 
sources  both  within  and  without  the  State  is  taxable.  If  the 
ostate  or  trust  is  a  nonresident  as  defined  in  article  243,  only  its 


r>s'»  Estates  and  Trusts 

income  from  sources  within  the  State  (exclusive  of  annuities, 
interest  on  bank  deposits,  interest  on  bonds,  notes  or  other 
interest-bearing  obligations  or  dividends  from  corporations,  ex- 
cept to  the  extent  to  which  the  same  shall  be  a  part  of  income  of 
any  business,  trade,  profession  or  occupation  carried  on  in  this 
State  subject  to  taxation)  is  taxable.  In  the  case  of  a  resident 
estate  or  trust  taxed  as  provided  in  this  article,  a  personal  exemp- 
tion of  $1,000  is  allowed  against  income  subject  to  tax.  If  the 
estate  or  trust  is  a  nonresident,  no  personal  exemption  is  allowed. 
ART.  245.  Income  of  estates  and  trusts  taxed  to  beneficiaries.— 
In  the  case  of  estates  and  trusts  falling  within  subdivisions  d,  e 
and  f  of  article  242,  the  fiduciary  is  required  to  make  a  return 
on  Form  205  as  prescribed  in  article  246.  The  fiduciary  is  not 
required  to  pay  any  tax,  the  income  being  taxable  directly  to  the 
beneficiary  or  beneficiaries.  Each  beneficiary  must  include  in 
his  return  his  distributive  share  whether  distributed  or  not,  of 
the  net  income  of  the  estate  or  trust  for  the  taxable  year,  or,  if 
his  net  income  for  such  taxable  year  is  computed  upon  the  basis 
of  a  period  different  from  that  upon  the  basis  of  which  the  net  in- 
come of  the  estate  or  trust  is  computed,  then  his  distributive  share 
of  the  net  income  of  the  estate  or  trust  for  any  accounting  period  of 
such  estate  or  trust  ending  within  the  fiscal  or  calendar  year  upon 
the  basis  of  which  such  beneficiary's  net  income  is  computed.  For 
the  purpose  of  the  imposition  and  collection  of  taxes  under  this 
article  the  residence  of  the  beneficiary  is  controlling.  A  resident 
beneficiary  is  taxable  on  the  income  of  an  estate  or  trust  regard- 
less of  whether  such  income  is  derived  from  sources  within  or 
without  the  State  and  without  consideration  as  to  whether  or 
not  the  estate  or  trust  is  a  resident  or  nonresident  estate  or  trust. 
A  nonresident  beneficiary  is  taxable  only  on  such  part  of  his 
income  from  the  estate  or  trust  as  arises  from  sources  within  the 
State  of  New  York  (exclusive  of  annuities,  interest  on  bank 
deposits,  interest  on  bonds,  notes  or  other  interest-bearing  obliga- 
tions or  dividends  from  corporations,  except  to  the  extent  to 
which  the  same  shall  be  a  part  of  income  from  any  business, 
trade,  profession  or  occupation  carried  on  in  this  State  subject 
to  taxation).  The  regulations  governing  partnerships  are  gen- 
erally applicable  to  such  an  estate  or  trust. 


Estates  and  Trusts  581 

AKT.  246.  Fiduciary  returns. —  Every  fiduciary  or  at  least  one 
of  joint  fiduciaries  (except  receivers  appointed  by  authority  of 
law,  in  possession  of  part  only  of  the  property  of  the  taxpayer) 
is  required  to  make  a  return  of  income  of  the  estate  or  trust  for 
which  he  acts  (either  (1)  a  tax  return  or  (2)  an  information 
return)  as  follows: 

1.  T AX  RETURN S- 

A.  The  fiduciary  of  every  resident  trust  or  estate  must  make  a 
tax  return  on  Form  200  or  201  and  pay  the  tax  on  the  tax- 
able income  of  each  estate  or  trust  taxed  as  an  entity  having 
a  net  income  of  $1,000  or  over  during  the  taxable  year  in  the 
case  of: 

(a)  Income  received  by  estates  of  deceased  persons  during 
the  period  of  administration  or  settlement ; 

(b)  Income  accumulated  in  trust  for  the  benefit  of  unborn 
or   unascertained   persons   or   persons   with   contingent 
interests ; 

(c)  Income  held  for  future  distribution  under  the  terms 
of  a  will  or  trust. 

In  (a)  the  fiduciary  is  entitled  to  deduct  the  amount  of  income 
properly  paid  or  credited  to  any  beneficiary. 

The  fiduciary  of  a  resident  estate  or  trust  is  entitled  to  the  per- 
sonal exemption  of  $1,000  in  ascertaining  the  tax  liability  of  the 
estate  or  trust. 

E.  The  fiduciary  of  every  nonresident  estate  or  trust  must 
make  a  tax  return  on  Form  2 00 a  or  201  a  and  pay  the  tax  on 
the  taxable  income  of  each  estate  or  trust  taxed  as  an  entity 
having  taxable  income  of  $1,000  or  over  during  the  taxable 
year  from  sources  within  the  State  of  New  York,  as  defined 
in  article  401,  in  the  case  of: 

(a)  Income  received  by  estates  of  deceased  persons  during 
the  period  of  administration  or  settlement ; 

(b)  Income  accumulated  in  trust  for  the  benefit  of  unborn 
or   unascertained   persons   or   persons   with   contingent 
interests ; 

(c)  Income  held  for  future  distribution  under  the  terms 
of  a  will  or  trust. 

In  (a)  the  fiduciary  is  entitled  to  deduct  the  amount  of  income 
properly  paid  or  credited  to  any  beneficiary. 

In  the  absence  of  any  specific  allocation  of  income  under  the 
will  or  deed  of  trust,  every  distribution  shall  be  deemed  to  apply 
ratably  to  taxable  and  non-taxable  income  of  the  estate  or  trust. 


582  Estates  and  Trusts 

The  fiduciary  of  a  nonresident  estate  or  trust  is  not  entitled  to 
any  personal  exemption  whatever  on  account  of  the  estate  or  trust. 

2.  INFORMATION  RETURNS  - 

The  fiduciary  of  every  estate  or  trust  (resident  or  nonresident) 
must  make  an  information  return  on  Form  205  if  any  beneficiary 
receives  or  is  entitled  to  a  distributive  share  of  taxable  income  of 
$1,000  or  over  during  the  taxable  year  in  the  following  cases : 

(a)  Income  which   is   to   be  distributed   to   beneficiaries 

periodically,  whether  or  not  at  stated  intervals; 

(b)  Income  collected  by  the  guardian  of  an  infant,  to 

be  held  or  distributed  as  the  court  may  direct ; 

(c)  Income  of  the  estate  of  any  deceased  person,  which 

during  the  period  of  administration  or  settlement, 
is  properly  paid  or  credited  to  any  legatee,  heir 
or  other  beneficiary. 

In  the  absence  of  any  specific  allocation  of  income,  under  the 
will  or  deed  of  trust,  every  distribution  shall  be  deemed  to  apply 
ratably  to  taxable  and  non-taxable  income  of  the  estate  or  trust 
and  the  beneficiary  must  be  guided  by  the  same  allocation. 

No  tax  is  to  be  paid  by  the  fiduciaries  on  these  returns  as  the 
income  is  taxable  to  the  beneficiaries,  but  there  shall  be  included 
in  computing  the  net  income  of  each  beneficiary  his  distributive 
share,  whether  distributed  or  not,  of  the  net  income  of  the  estate 
or  trust  for  the  taxable  year. 

If  the  estate  or  trust  (a)  has  a  nonresident  beneficiary  and 
(b)  carries  on  business  (as  "business  carried  on"  is  defined  in 
article  415)  both  within  and  without  the  State  of  N"ew  York,  the 
fiduciary  shall  accompany  his  return  with  a  schedule  of  appor- 
tionment on  Form  20 5 a. 

ART.  247.  Tax  returns  for  beneficiaries. —  Every  fiduciary 
must  make  a  return  of  income  on  Form  200  or  201  for  every 
individual  whose  entire  income  is  in  charge  of  such  fiduciary,  if 
such  individual  is  a  resident  and  his  net  income  is  $2,000  or  over, 
if  living  with  husband  or  wife,  or  $1,000  or  over  in  other  cases. 
If  such  individual  is  a  nonresident,  the  fiduciary  must  make  a 
return  of  the  income  of  such  individual  on  Form  200a  or  201a, 
regardless  of  the  amount  of  his  taxable  income.  In  such  cases, 
the  fiduciary  must  pay  the  tax  shown  by  the  return  to  be  due. 

ART.  248.  Return  by  guardian  or  committee A  fiduciary  act- 
ing as  the  guardian  of  a  resident  minor  having  a  net  income  of 
$1,000  or  $2,000,  according  to  the  marital  status  of  such  person, 


Uxtates  and  Trusts  583 

must  make  a  return  for  such  minor  on  Form  200  or  201  and  pay 
the  tax,  unless  such  minor  himself  makes  a  return  or  causes  it 
to  be  made.  A  fiduciary  acting  as  the  committee  of  a  resident 
incompetent  person  having  an  income  of  $1,000  or  $2,000,  ac- 
cording to  the  marital  status  of  such  person,  must  make  a  return 
for  such  incompetent  on  Form  200  or  201  and  pay  the  tax.  Such 
return  must  be  made  on  Form  200-a  or  201-a  in  the  case  of  a 
nonresident  minor  or  nonresident  incompetent,  regardless  of  the 
amount  of  the  taxable  income. 

ART.  249.  Returns  where  more  than  one  trust —  In  the  case  of 
two  or  more  trusts  the  income  of  which  is  taxable  to  the  bene- 
ficiaries, which  were  created  by  the  same  person  and  are  in 
charge  of  the  same  trustee,  the  trustee  may  at  his  option  make 
a  single  return  on  Form  205  for  all  such  trusts,  notwithstanding 
that  they  may  arise  from  different  instruments.  When,  however, 
a  trustee  holds  trusts  created  by  different  persons  for  the  benefit 
of  the  same  beneficiary  he  shall  make  a  return  on  Form  205  for 
each  trust  separately, 

ART.  250.  Return  by  receiver — A  receiver  who  stands  in  the 
stead  of  an  individual  must  render  a  return  of  income  on 
Form  2'00  or  201  and  pay  the  tax  for  his  trust,  but  a  receiver  of 
only  part  of  the  property  of  an  individual  need  not  do  so.  A 
receiver  in  charge  of  the  business  of  a  partnership  shall  render 
a  return  on  Form  204.  A  receiver  appointed  to  hold  and  operate 
a  mortgaged  parcel  of  real  estate,  to  whom  rents  and  profits  are 
paid,  but  who  is  not  in  control  of  all  the  property  or  business  of 
the  mortgagor,  and  a  receiver  in  partition  proceedings,  are  not 
required  to  render  returns  of  income.  In  general  statutory  re- 
ceivers and  common  law  receivers  of  all  the  property  or  business 
of  an  individual  must  make  returns.  (See  also  Tax  Law,  section 
366,  and  article  247.) 

ART.  251.  Computation  of  income  of  estates  and  trusts The 

net  income  of  an  estate  or  trust  shall  be  computed  in  the  same 
manner  and  on  the  same  basis  as  the  net  income  of  an  individual, 
except  that  there  shall  also  be  allowed  as  a  deduction  from  the 
gross  income  any  part 'of  it  which  during  the  taxable  year  is, 
pursuant  to  the  will  or  trust  deed,  paid  to  or  permanently  set 
aside  for  the  United  States,  a  State,  a  Territory  or  any  political 


584  Hshilc*  and  7Y//X/N 

subdivision  thereof,  the  District  of  Columbia,  or  any  corporation 
or  association  organized  and  operated  exclusively  for  religious, 
charitable,  scientific  or  educational  purposes  or  for  the  prevention 
of  cruelty  to  children  or  animals,  no  part  of  the  net  earnings  of 
which  inures  to  the  benefit  of  any  private  stockholder  or  indi- 
vidual. The  gross  income  of  a  revocable  trust  must  be  included 
in  the  gross  income  of  the  grantor.  Ko  taxable  income  is 
realized  from  the  passage  of  property  to  the  executor  or  admin- 
istrator on  the  death  of  the  decedent,  even  though  it  may  have 
appreciated  in  value  since  the  decedent  acquired  it.  In  the  event 
of  delivery  of  property  in  kind  to  a  legatee  or  distributee,  no 
income  is  realized.  Where,  however,  the  executor  sells  property 
of  the  estate  for  more  than  its  fair  market  value  at  the  death  of 
the  decedent,  (or  on  January  1,  1919,  if  the  decedent's  death 
occurred  prior  thereto)  the  excess  is  taxable  income.  (See 
article  252.) 

ART.  252.  Losses  and  gains  from  the  sales  by  fiduciaries  of  prop- 
erty included  in  the  original  trust  or  estate — The  profit  or  loss 
from  the  sale  or  other  disposition  of  property  included  in  the 
original  trust  or  estate  is  the  difference  between  the  sales  price 
and  the  fair  market  value  of  the  property  at  the  time  of 
decedent's  death  or  at  the  date  of  the  creation  of  the  trust,  unless 
the  decedent's  death  occurred  or  the  trust  was  created  prior  to 
January  1,  1919,  in  which  case  the  fair  market  value  upon  that 
date  is  the  basis  for  determining  loss  or  gain.  Profit  derived 
from  the  sale  or  other  disposal  of  assets  of  estates  or  trusts  even 
though  considered  as  a  capital  asset  of  the  trust  or  estate,  is 
taxable  income,  and  taxable  to  the  beneficiaries,  if  paid  or 
credited  to  them,  or  to  the  estate  or  trust  as  an  entity,  if  not  so 
paid  or  credited;  likewise,  losses  from  the  sale  of  capital  assets 
are  Allowable  deductions  from  the  gross  income  of  the  estate  or 
trust. 

ART.    253.     Decedent's     estate     during     administration The 

"period  of  administration  or  settlement  of  the  estate"  is  the 
period  required  by  the  executor  or  administrator  to  perform  the 
ordinary  duties  pertaining  to  administration,  in  particular  the 
collection  of  assets  and  the  payment  of  debts  and  legacies.  It  is 
the  time  actually  required  for  this  purpose,  whether  longer  or 


Estates  and  Trusts  585 

g  » 

shorter  than  the  period  specified  in  the  local  statute  for  the  settle- 
ment of  estates.  Where  an  executor,  who  is  also  named  as 
trustee,  fails  to  obtain  his  discharge  as  executor,  the  period  of 
administration  continues  up  to  the  time  when  the  duties  of  admin- 
istration are  complete  and  he  actually  assumes  his  duties  as 
trustee,  whether  pursuant  to  an  order  of  the  court  or  not. 

ART.  254.  Deductions  allowed  estates  and  trusts. —  Distinction 
is  made  between  (1)  expenses  which  are  charges  against  the 
corpus  of  an  estate  or  trust  and  (2)  expenses  which  are  incident 
to  the  business  management  of  the  estate  or  trust.  Items  falling 
under  (1)  are  not  proper  deductions  in  computing  net  income, 
whereas  items  which  fall  under  (2)  are  proper  deductions  in 
computing  net  income. 

In  accordance  with  the  foregoing,  executor's  commissions, 
court  costs  and  attorney's  fees  in  connection  with  the  settlement 
of  an  estate  or  the  creation  of  a  trust  which  are  directly  charge- 
able to  the  corpus  of  the  estate  or  trust,  are  not  proper  deductions 
in  determining  net  income.  Likewise,  expenses  incurred  by  a 
fiduciary  in  litigation  to  sustain  a  will  are  not  proper  deductions 
in  determining  net  income.  On  the  other  hand,  if  trustees'  com- 
missions are  deducted  from  the  income  of  the  estate  or  trust  dis- 
tributable among  the  beneficiaries,  the  amount  of  such  commis- 
sion should  be  entered  as  legitimate  arid  necessary  expenses  prop- 
erly deductible  by  the  fiduciary  for  income  tax  purposes. 

Expenses  necessary  to  carrying  on  the  business  of  the  trust 
or  estate  by  the  fiduciary  are  deductible  in  the  same  manner  as 
similar  expenses  of  an  individual;  likewise  interest,  taxes,  losses, 
depreciation  and  depletion  are  subject  to  the  same  rules  relating 
to  these  deductible  items  as  apply  to  individuals. 

ART.  255.  Liability  for  payment  of  the  tax —  Liability  for  pay- 
ment of  the  tax  attaches  to  the  person  of  an  executor  or  admin- 
istrator up  to  and  after  his  discharge,  where  prior  to  distribution 
and  discharge  he  had  notice  of  his  tax  obligation  or  failed  to 
exercise  due  diligence  in  determining  whether  or  not  such  obliga- 
tion existed.  Liability  for  the  tax  also  follows  the  estate  itself, 
and  when  by  reason  of  the  distribution  of  the  estate  and  the  dis- 
charge of  the  executor  or  administrator  it  appears  that  collection 
of  the  tax  cannot  be  mad©  from  the  executor  or  administrator, 


Estates  cut 


rusts 


the  legatees  or  distributees  must  account  for  their  proportioi 
share  of  the  tax  due  and  unpaid.     The  same  considerations  apj 
to  other  trusts.     Where  the  tax  has  been  paid  on  the  net  iiicoi 
of  an  estate  or  trust  by  the  fiduciary,  such  income  is  free  froi 
tax  when  distributed  to  the  beneficiaries. 


WITHHOLDING  AT  SOURCE 

ART.  261.  Deducting  and  withholding  tax  at  source —  Under  the 
opinion  of  the  Attorney-General  (Income  Tax  Letter  ~No.  1, 
May  29,  1919),  deducting  and  withholding  is  required  of  one 
per  cent  (1%)  on  the  first  $10,000  and  of  two  per  cent  (2%) 
on  all  sums  in  excess  of  $10.000  from  all  salaries,  wages,  com- 
missions, gratuities,  emoluments,  perquisites  and  other  fixed  and 
determinable  annual  or  periodical  compensation  earned  for  per- 
sonal services  in  a  business,  trade,  profession  or  occupation  car- 
ried on  within  the  State,  if  the  aggregate  amount  thereof  in  any 
calendar  year  on  account  of  any  individual  equals  or  exceeds 
$1,000,  unless  there  shall  be  filed  with  the  withholding  agent  a 
certificate  of  residence,  on  Form  101,  to  the  effect  that  the 
recipient  is  a  resident  of  the  State  and  setting  forth  his  residence 
address  within  the  State. 

ART.  262.  Deducting  and  withholding  in  1919 — Withholding 
agents  shall  deduct  and  withhold,  as  set  forth  in  article  261,  in 
respect  of  personal  service  compensation  paid  or  credited  to  the 
payee  at  any  time  on  or  after  January  1,  1919,  except  that  if 
the  employee  left  the  service  of  the  withholding  agent  prior  to 
May  14,  1919  (the  date  of  the  enactment  of  chapter  627  of  the 
Laws  of  1919),  and  was  fully  paid  prior  to  that  date,  no  duty  or 
obligation  in  respect  to  such  payments  rests  on  the  withholding 
agent,  unless  the  status  of  employer  and  employee  is  again  created 
during  1919  and  further  payments  of  compensation  for  personal 
services  are  made  or  credited  in  1919.  In  other  words,  the  pro- 
visions for  deducting  and  withholding  are  effective  from  Janu- 
ary 1,  1919,  except  as  stated  in  this  article. 

ART.  263.  Fixed  or  determinable  annual  or  periodical  income 

Only  income  earned  for  personal  services  is  subject  to  deducting 
and  withholding.  The  statute  specifies  that  every  withholding 
agent  shall  deduct  from  all  salaries,  wages,  commissions,  gratui- 
ties, emoluments  and  perquisites.  But  other  kinds  of  personal 
service  income  may  be  included  if  fixed  or  determinable,  annual 
or  periodical.  Income  is  fixed  when  it  is  to  be  paid  in  amounts 
definitely  predetermined.  It  is  determinable  whenever  there  is 

[587] 
7 


588  Withholding  at  Source 

a  basis  of  calculation  by  which  the  amount  to  be  paid  may  be 
ascertained.  The  income  need  not  be  paid  annually  or  at  an 
annual  rate.  It  may  be  paid  periodically.  The  word  "  period- 
ical "  is  used  in  opposition  to  "  annual "  and  means  from  time  to 
time,  whether  or  not  at  regular  intervals.  That  the  length  of 
time  during  which  the  payments  are  to  be  made  may  be  increased 
or  diminished  in  accordance  with  someone's  will  or  with  the 
happening  of  an  event,  does  not  make  the  payments  any  the  less 
determinable  or  periodical. 

The  following  shall  be  deemed  to  be  fixed  and  determinable 
annual  or  periodical  compensation  within  the  meaning  of  sec- 
tion 360  of  the  Tax  Law: 

Any  payment  made  by  way  of  salary,  wage,  commission, 
gratuity,  emolument,  perquisite  or  otherwise  for  personal  services 
rendered,  if  the  amount  thereof  shall  be 

(a)  determined  prior  to,  concurrent  with  or  subsequent 
to  the  rendering  of  the  service,  and  is 

(b)  based  on  personal  services  rendered  by  the  hour,  week, 
month,  year  or  other  period  of  time, 

whether  such  personal  service  consists  of 

(c)  the  performance  of  specified  or  unspecified  duties,  or  of 

(d)  work  done  on  or  in  connection  with  one  or  more  of 
certain  articles  or  parts  thereof; 

irrespective  of  whether  payment  be  made 

(e)  in  cash, 

(f)  in   board   or   lodging,   or   both, 

(g)  in  the  stock  of  a  corporation, 

(h)  by  promissory  note  or  other  obligation,  or 
(i)    in  property,  service  or  otherwise. 

If  payment  shall  be  made  otherwise  than  in  cash,  it  shall  be 
considered  and  treated  as  payment  in  cash  to  the  fair  market 
value  (determinable  usually  by  understanding  or  agreement 
existing  between  the  payor  and  the  payee)  of  such  medium,  other 
than  cash,  as  may  be  employed. 

Fees  for  professional  services  are  not  subject  to  withholding 
unless  contracted  for  or  paid  on  an  annual  or  periodical  basis. 

ART.  264.  Year,  for  purposes  of  deducting  and  withholding.— 
Deducting  and  withholding  of  personal  service  compensation  by 


Withholding  at  Source  589 

withholding  agents  shall  be  on  the  basis  of  a  calendar  year,  irre- 
spective of  the  basis  of  reporting  adopted  by  the  payee-taxpayer. 
Personal  service  compensation  shall  be  deemed  to  have  been  paid 
by  the  withholding  agent  and  received  by  the  payee-taxpayer  only 
if  and  to  the  extent  actually  paid  or  credited  to  the  payee  and  thus 
made  reducible  to  possession  by  him.  Commissions  and  all  other 
forms  of  personal  service  compensation  determined  and  paid  or 
credited  to  a  payee-taxpayer  after  the  close  of  a  calendar  year, 
shall,  for  the  purpose  of  deducting  and  withholding  the  tax  and 
of  returning  information  with  respect  thereto,  be  treated  as  pay- 
ments made  in  the  calendar  year  when  paid  or  credited,  but  for 
such  purposes  only.  The  approved  method  of  accounting 
employed  by  the  payee-taxpayer  shall  govern  in  so  far  as  he 
may  be  called  upon  to  account  for  such  payments  for  income  tax 
purposes. 

ART.  265.  Income  not  subject  to  deducting  and  withholding — 
Deducting  and  withholding  from  income  is  not  required  in  the 
following  cases: 

(a)  In  respect  of  personal  service  compensation  income  when 

there  shall  have  been  filed  with  the  withholding  agent 
a  resident's  certificate  on  Form  101,  to  the  effect  that 
the  person  receiving  the  compensation  is  a  resident  of 
this  State  and  setting  forth  his  residence  address  within 
the  State. 

(b)  If  of  a  character  other  than  compensation  for  personal 

services. 

(c)  Where  the  personal  services  are  rendered  entirely  without 

the  State,  by  a  nonresident,  whether  payment  be  made 
from  within  or  without  the  State,  irrespective  of  the 
status  of  the  withholding  agent.  The  occasional  entry 
into  the  State  of  a  nonresident  employee  who  performs 
the  duties  for  which  he  is  employed  entirely  without 
the  State,  but  enters  the  State  for  the  purpose  of  report- 
ing, receiving  instructions,  accounting,  etc.,  incidental 
to  his  duties  without  the  State,  shall  not  be  deemed  to 
take  such  employee  out  of  the  class  of  those  rendering 
their  services  entirely  without  the  State. 


590  Withholding  at  Source 

(d)  Where  the  personal  services  are  rendered  within  the  State, 
if  rendered  for.  and  delivery  of  payment  is  made  with- 
out the  State  by,  a  nonresident  individual  or  partnership 
having  no  office  or  place  of  business  or  paying  agent 
within  the  State,  or  a  foreign  corporation  that  (1)  is 
not  registered  in  New  York  and  (2)  has  no  office  or 
place  of  business  or  paying  agent  within  the  State. 
(Nothing  in  subparagraph  "  d "  shall  be  construed  to 
relieve  the  recipient  from  liability  to  make  return  and 
pay  the  tax  on  such  income.) 

ART.  266.     (Revised.)     Income  of  a  nonresident  for  services  per- 
formed partly  within  and  partly  without  the  State In  case  a 

nonresident  receives  compensation  for  personal  services  rendered 
or  performed  partly  within  and  partly  without  the  State,  the  with- 
holding agent  shall  deduct  and  withhold  on  that  portion  of  the 
compensation  which  is  earned  within  the  State  of  New  York  in 
accordance  with  the  following  rules  of  apportionment: 

(a)  If  the  nonresident  is  a  salesman,  drummer,  agent  or  other 

employee  through  whose  services  receipts  or  remunera- 
tion inure  directly  to  the  employer,  the  deducting  and 
withholding  shall  attach  to  the  portion  of  the  entire 
salary  which  the  volume  of  business  transacted  by  the 
employee  within  the  State  of  New  York  bears  to  the 
total  volume  of  business  transacted  within  and  without 
the  State  by  such  employee. 

(b)  If  the  nature  of  the  employment  of  the  nonresident  is 

such  that  receipts  or  remuneration  for  services  rendered 
do  not  inure  directly  to  the  employer,  as  in  the  case  of 
clerks,  bookkeepers,  laborers  or  other  like  classes  of 
employees,  the  deducting  and  withholding  shall  attach 
to  the  portion  of  the  personal  service  compensation  in- 
come of  such  employee  which  the  time  employed  within 
the  State  bears  to  the  time  employed  both  within  and 
without  the  State. 


Withholding  at  Source  591 

(c)  If  it  is  not  possible  to  apportion  the  income  as  above  pro- 
vided, because  of  the  peculiarities  of  the  service  of  the 
employee,  the  apportionment  shall  be  made  in  accord- 
ance with  the  facts  and  the  tax  deducted  and  withheld 
accordingly.  In  such  a  case  a  full  statement  of  the  facts 
shall  be  made  to  the  Comptroller. 

ART.  267.  Form  of  residence  certificate — Form  101  shall  be 
used  by  residents  of  the  State  of  New  York  for  the  purpose  of 
claiming  the  benefit  of  such  residence  for  income  tax  purposes. 
Withholding  agents  shall  retain,  preserve  and  keep  available  for 
examination  and  inspection  by  the  Comptroller  or  his  authorized 
representative  all  residence  certificates  for  a  period  of  one  year 
next  following  the  close  of  the  calendar  year  for  which  such 
certificates  shall  have  been  given.  Blanks  (Form  101)  will  be 
furnished  by  the  Comptroller  on  the  application  of  withholding 
agents.  Withholding  agents  may,  if  they  choose  to  do  so,  use 
blanks  acquired  from  other  sources,  provided,  however,  that  the 
form  and  wording  thereof  shall  comply  exactly  with  Form  101. 
ART.  268.  (Revised.)  Renewal  of  residence  certificates — A 
certificate  of  residence  shall  be  effective  only  for  the  calendar 
year  in  which  it  is  filed.  New  certificates  shall  be  required  by 
withholding  agents  for  each  succeeding  calendar  year. 

ART.  269.  Deducting  and  withholding  where  residence  is  estab- 
lished.— When  a  withholding  agent  shall  have  deducted  and  with- 
held from  the  personal  service  compensation  of  an  employee  and 
such  employee  shall  thereafter,  before  return  of  the  amount  so 
withheld  is  made  by  the  withholding  agent  but  not  later  than 
March  15  in  the  year  following,  file  with  the  withholding  agent 
a  residence  certificate  on  Form  101.  the  withholding  agent  shall 
thereupon  pay  over  to  the  employee  the  entire  amount  of  income 
so  deducted  and  withheld  for  such  calendar  year. 

ART.  270.  Return  of  tax  withheld —  Every  withholding  agent 
shall,  for  each  calendar  year,  on  or  before  March  15  next  fol- 
lowing, make  a  verified  return  to  the  New  York  State  Income 


592  Withholding  at  Source 

^P 

Tax  Bureau  of  all  sums  deducted  and  withheld  from  the  personal 
service  compensation  of  employees  during  that  calendar  year,  in 
accordance  with  articles  261  and  262.  The  return  shall  be  made 
on  Form  103,  accompanied  by  separate  reports,  one  for  each  indi- 
vidual, on  Form  102.  There  shall  be  reported  on  such  reports 
the  items  of  information  therein  called  for.  The  aggregate 
amount  of  tax  shown  to  be  withheld  by  the  return  on  Form  103 
shall  accompany  the  return. 


INFORMATION  AT  SOURCE 

ART.  281.  Who  shall  make  returns  of  information —  The  follow- 
ing shall  make  returns  of  information  to  the  ,N"ew  York  State 
Tncome  Tax  Bureau,  Albany,  N.  Y.  Every 

(a)  resident  of  the  State, 

(b)  officer  and  employee  of  the  State, 

(c)  officer  and  employee  of  a  municipal  corporation  or  political 

subdivision  of  the  State, 

(d)  domestic  corporation, 

(e)  foreign  corporation  registered  within  the  State, 

(f)  individual,  corporation,  association  and  partnership  main- 

taining an  office  or  place  of  business  within  the  State, 
whether  or  not  a  paying  agency  be  maintained  within 
the  State. 

making  payment  to  a  taxpayer  of  fixed  or  determinable  taxable 

income  of  $1,000  or  more  in  a  calendar  year. 

ART.  282.  Return  of  information  where  no  actual  withholding. 
-  Returns  of  information  shall  be  made  for  the  calendar  year  and 
shall  be  filed  with  the  New  York  State  Income  Tax  Bureau, 
Albany,  IN".  Y.,  on  or  before  March  15  next  following.  The 
return  shall  be  made  on  Form  105.  The  return  or  returns  of 
information  shall  be  accompanied  by  a  verified  letter  of  trans- 
mittal  on  Form  106.  There  shall  be  reported  on  such  forms  the 
items  of  information  therein  called  for.  Whether  the  recipient 
is  single,  married  or  the  head  of  a  family,  is  to  be  stated  if  pos- 
sible. Where  no  present  address  is  available,  the  last  known  post- 
office  address  must  be  given. 

ART.  283.  No  return  of  information  where  there  has  been  actual 
withholding. —  No  return  or  report  shall  be  made  on  Forms  105 
and  106,  of  paynrcnts  of  personal  service  compensation,  where 
there  has  been  actual  withholding  and  report  made  thereof  on 
Forms  102  and  103  as  provided  in  article  270. 

ART.  284.  Return  of  information  for  payments  in  1919 —  Returns 
of  information  for  the  calendar  year  1919  shall  include  all  pay- 
ments made  during  that  year,  the  Income  Tax  Law  being  retro- 
active in  this  regard  to  January  1,  1919. 

[593] 


ART.  285.  What  is  included  in  calculating  $1,000  for  the  purpose 
of  reporting  information — Returns  of  information  are  required 
of  all  amounts  paid  or  credited  to  the  same  payee  by  one  payor 
(except  as  provided  in  article  289)  if  they  aggregate  $1,000  or 
more  during  the  calendar  year,  irrespective  of  the  basis  of  report- 
ing by  the  payee  or  by  the  payor.  The  necessity  of  reporting  is 
not  limited  to  payments  of  income  of  a  single  kind  equalling  or 
exceeding  $1,000,  but  information  returns  are  required  if  the 
aggregate  payments  of  income  of  all  kinds,  of  which  returns 
of  information  are  generally  required,  equal  or  exceed  $1,000. 
For  example,  if  a  payor  pays  to  a  payee  $600  for  personal  services, 
$250  for  rent  and  $150  for  interest,  he  is  required  to  report  the 
payments  on  Form  105,  the  aggregate  of  these  sums  equalling 
$1,000. 

ART.  286.  Returns  of  information  as  to  payments  for  personal 
service — Payments  for  personal  service,  equalling  or  exceeding 
$1,000  for  the  calendar  year,  whether  such  total  sum  is  made 
up  of  wages,  salaries,  commissions  or  any  other  compensation, 
however  paid,  must  be  reported.  Heads  of  branch  offices  and 
subcontractors  employing  labor,  who  keep  the  only  complete 
record  of  payments  therefor,  should  file  returns  of  information 
in  regard  to  such  payments  directly  with  the  Income  Tax  Bureau. 
When  both  main  office  and  branch  office  have  adequate  records 
the  return  should  be  filed  by  the  main  office.  In  the  case  of  an 
employer  having  a  large  number  of  employees  who  are  moved 
from  place  to  place  as  the  exigencies  of  the  service  require,  and 
who  has  no  complete  record  of  annual  payments  to  them  at  any 
one  place,  the  average  monthly  compensation  of  two  representa- 
tive months  may  be  taken  to  establish  a  fair  monthly  wage  and, 
unless  the  yearly  payment  based  on  this  estimate  in  the  case  of 
an  employee  amounts  to  $1,000  or  more,  no  return  of  informa- 
tion respecting  such  payments  is  required. 

ART.  287.  Return  of  information  as  to  payments  of  interest  on 
registered  bonds — Every  (a)  domestic  corporation  and  (b)  regis- 
tered foreign  corporation,  making  payment  to  a  resident  of  the 
State,  of  interest  on  registered  bonds  or  other  obligations,  shall 
make  returns  of  information  thereon  if  the  amount,  either  of 
itself  or  in  connection  with  other  payments  of  income  to  the  same 


Information  at  Source  595 

payee,  equals  or  exceeds  $1,000  in  a  calendar  year.  Any  such 
corporation  may  make  returns  through  its  fiscal  or  paying  agent. 
In  case  the  payee  is  known  to  be  a  nonresident  of  the  State  no 
return  need  be  made  in  respect  of  him.  If  the  residence  of 
the  payee  is  not  known  to  the  corporation  or  its  fiscal  or  paying 
agent,  it  need  report  only  such  payments  as  are  made  to  payees 
with  registered  addresses  withiu  the  State. 

Fiscal  or  other  paying  agents  of  (a)  States,  (b)  municipal 
corporations  or  political  subdivisions  of  'States,  (c)  foreign  gov- 
ernments, or  (d)  unregistered  foreign  corporations,  are  not  re- 
quired to  make  returns  of  interest  payments. 

ART.  288.  Return  of  information  as  to  payment  of  dividends. — 
When  directed  by  the  State  Comptroller,  either  specially  or  by 
general  regulation,  every  domestic  or  registered  foreign  corpora- 
tion shall  render  a  return  of  its  payments  of  dividends  and  distri- 
butions to  resident  stockholders,  if  the  amount  paid  or  distributed 
equals  or  exceeds  $1,000  in  a  calendar  year,  for  such  period  as 
may  be  specified,  stating  the  name  and  address  of  each  stock- 
holder, the  number  and  class  of  shares  owned  by  him  and  the 
date  and  amount  of  each  dividend  paid  him.  If  the  residence  of 
the  payee  is  not  known  to  the  corporation,  or  its  fiscal  or  paying 
agent,  it  need  report  only  such  payments  as  are  made  to  payees 
with  registered  addresses  within  the  State. 

ART.  289.  Payments  of  which  no  return  of  information  is 
required —  Payments  of  the  following  classes  need  not  be  reported 
on  returns  of  information: 

(a)  Dividends  (see  article  2SS), 

(b)  Interest  coupons  payable  to  bearer   (see  article  287  for 

reports  of  payments  of  interest  on  registered  bonds), 

(c)  Income  exempt  from  taxation  under  section  359,  subdi- 

vision 2,  of  the  Tax  Law, 

(d)  Bills  paid  for  merchandise,  telegrams,  telephone,  freight, 

storage  and  similar  charges, 

(e)  To  employees  for  board  and  lodging  while  traveling  in  the 

course  of  their  employment, 

(f)  Annuities  representing  the  return  of  capital, 

(g)  Of  rent,  made  to  real  estate  agents   (but  the  agent  must 

report  payments  to  the  landlord  if  they  equal  or  exceed 
$1,000  annually), 


596  Information  at  Source 

(h)  To  nonresident  employees,  for  services  rendered  entirely 
without  the  State, 

(i)  To  nonresidents,  of  annuities,  including  pensions,  interest 
on  bank  deposits,  interest  011  bonds  or  other  interest- 
bearing  obligations  or  dividends, 

(j)  Fees  for  professional  services,  except  retainers  on  an 
annual  or  periodical  basis, 

(k)  To  corporations,  to  partnerships  and  fiduciaries,  and  dis- 
tributions by  partnerships  to  partners  and  by  fiduciaries 
to  beneficiaries. 

ART.  290.  Information  as  to  actual  owner. —  When  the  person 
receiving  a  payment  or  credit,  with  respect  to  which  information 
at  the  source  is  required,  is  not  the  actual  owner  of  the  income 
received,  the  name  and  address  of  the  actual  owner  shall  be  fur- 
nished upon  demand  of  the  State  Comptroller,  and  in  default  of 
a  compliance  with  such  demand,  the  payee  becomes  liable  to  the 
penalties  provided.  (See  subdivision  1,  section  376,  of  Hie 
statute.) 


NONRESIDENT  SECTION 

TAX  ON  NONRESIDENTS 

ART.  401.  Tax  on  nonresidents. —  In  the  case  of  a  nonresident, 
the  tax  is  imposed  upon  his  entire  net  income  from  sources  within 
the  State;  that  is.  (a)  from  all  property  owned  and  (b)  from  every 
business,  trade,  profession  or  occupation  carried  on  in  the  State 
of  New  York.  It  is  not  imposed  upon  income  arising  from 
annuities,  interest  011  bank  deposits,  interest  on  bonds,  notes  or 
other  interest-bearing  obligations  or  dividends  from  corporations, 
except  to  the  extent  to  which  the  same  shall  be  a  part  of  the  tax- 
able income  from  any  business,  trade,  profession  or  occupation 
carried  on  in  this  State.  (Tax  Law,  sections  351  and  359.) 
(See  article  415.) 

GROSS  INCOME  DEFINED 

ART.  411.  Gross  income — With  respect  to  every  business,  trade, 
profession  or  occupation  carried  on  within  the  State  of  New  York 
by  a  nonresident,  the  gross  income  therefrom  is  determined  in  the 
same  manner  as  in  the  case  of  a  resident,  and  includes  and 
excludes  the  same  elements.  The  articles  in  the  resident  section 
of  these  regulations  under  the  titles  of  "  Gross  Income  Denned : 
Inclusions,"  "  Gross  Income  Defined :  Exclusions  "  and  "  Gross 
Income  Denned:  Basis  for  Determining  Gain  or  Loss,"  apply 
equally  to  nonresidents  except  as  stated  in  the  following  articles, 
412  to  419.  A  nonresident  member  of  a  partnership  is  taxable 
on  his  distributive  share  of  that  portion  of  the  partnership  profits 
which  is  derived  from  sources  within  the  State.  With  respect 
to  the  apportionment  of  the  income  of  a  nonresident  (or  a  part- 
nership with  a  nonresident  member)  derived  from  sources  both 
within  and  without  the  State,  see  articles  451-470. 

ART.  412.  Compensation  for  personal  services The  gross 

income  of  a  nonresident  (not  engaged  in  the  practice  of  a  trade, 
profession  or  occupation  on  his  own  account,  but  employed  and 
receiving  compensation  for  his  services)  includes  compensation 
for  personal  services  only  if,  and  to  the  extent  that,  the  services 
were  rendered  within  the  State  of  New  York.  Compensation 
for  personal  services  rendered  by  a  nonresident  wholly  without 

[597] 


598  Nonresident  Section 

the  State  is  excluded  from  gross  income  regardless  of  the  fact  that 
payment  may  be  made  from  a  point  within  the  State  or  that  the 
employer  is  a  resident  individual,  partnership  or  corporation. 
See  articles  451  and  452  for  apportionment  of  compensation  for 
services  rendered  by  a  nonresident  partly  within  and  partly  with- 
out the  State. 

ART.  413.  Pensions  received — When  received  by  a  nonresident, 
a  pension  of  any  kind  is  not  taxable  income  as  it  is  an  annuity 
and,  therefore,  exempt  from  taxation  against  a  nonresident.  (See 
Tax  Law,  section  359,  subdivision  3,  and  article  J^l.) 

ART.  414.  Gross  income  from  business — In  the  case  of  a  non- 
resident (other  than  one  who  is  employed  by  another,  as  dis- 
tinguished from  doing  business  on  his  own  account)  gross  income 
from  a  business,  trade,  profession  or  occupation  is  determined  in 
the  same  manner  as  is  the  gross  income  of  a  resident,  from  a  busi- 
ness, trade,  profession  or  occupation,  but  includes  only  income 
from  a  business,  trade,  profession  or  occupation  carried  on  within 
the  State  of  New  York.  (See  article  457.) 

ART.  415.  Definition  of  " business  carried  on"  within  the  State. 
—  A  business,  trade,  profession  or  occupation  (as  distinguished 
from  personal  service  as  employee)  is  carried  on  within  the  State 
by  a  nonresident  when  he  occupies,  has,  maintains  or  operates 
desk  room,  an  office,  a  shop,  a  store,  a  warehouse,  a  factory, 
an  agency  or  other  place  where  his  affairs  are  systematically  and 
regularly  carried  on  notwithstanding  the  occasional  consummation 
of  isolated  transactions  without  the  State.  Business  is  being  car- 
ried on  if  it  is  here  with  a  fair  measure  of  permanency  and  con- 
tinuity. Its  regularity  or  continuity  need  not  be  for  a  long 
period;  the  life  of  the  business  is  not  a  material  factor. 

ART.  416.  Sale  of  stocks,  bonds  and  other  securities — Gains  and 
profits  of  a  nonresident  from  the  sale,  exchange  or  other  dispo- 
sition of  stocks,  bonds  and  other  securities  are  not  taxable  and 
should  not  be  included  in  gross  income,  except  to  the  extent  to 
which  the  same  shall  be  a  part  of  the  income  from  a  business  car- 
ried on  in  the  State  of  New  York,  even  though  the  sale  or  other 
disposition  thereof  may  have  been  made  within  the  State  of  Xew 
York  or  consummated  on  an  exchange  located  within  such  State. 
Likewise,  losses  sustained  from  the  sale,  exchange  or  other  dis- 


Nonresident  Section  599 

position  of  stocks,  bonds  and  other  securities  under  like  con- 
ditions are  not  deductible,  except  to  the  extent  that  they  may  be 
losses  incurred  in,  because  forming  a  part  of  a  business  carried  on 
within  the  State. 

ART.  417.  Sale  of  property  other  than  securities — Gross  income 
of  a  nonresident  shall  include  all  the  profits  derived  from  the  sale, 
exchange  or  other  disposition  of  real  property  located  within  the 
State  of  New  York.  It  also  includes  all  the  profits  derived  from 
the  sale,  exchange  or  other  disposition  of  personal  property  (other 
than  stocks,  bonds  or  other  securities)  having  an  actual  situs 
within  the  State  but  not  forming  part  of  the  assets  of  a  business 
carried  on  within  the  State.  Gross  income  from  the  sale,  ex- 
change or  other  disposition  of  real  or  personal  property  is  deter- 
mined in  the  same  manner  as  gross  income  from  similar  sales 
by  a  resident.  (See  articles  34-39.) 

ART.  418.  Bents  and  royalties — The  gross  income  of  a  non- 
resident from  rents  and  royalties  includes  all  rents  and  royalties 
received  from  property  located  within  the  State  of  New  York 
and  excludes  all  other  rents  and  royalties.  Such  gross  income  is 
determined  in  the  same  manner  as  is  the  gross  income  of  a  resi- 
dent from  rents  and  royalties.  (See  articles  4®  and  120.)  Kent 
received  by  a  nonresident  for  property  located  without  the  State 
is  excluded  from  gross  income  regardless  of  the  fact  that  pay- 
ments may  be  made  from  a  point  within  the  State  by  a  resident 
individual,  partnership  or  corporation. 

ART.  419.  Interest  and  dividends — Except  to  the  extent  to 
which  interest  and  dividend  income  shall  be  part  of  the  taxable 
income  from  any  business,  trade,  profession  or  occupation,  car- 
ried on  within  the  State  of  New  York,  a  nonresident  shall  exclude 
interest  and  dividends  from  gross  income. 

DEDUCTIONS  ALLOWED 

ART.  431.  Allowable  deductions — In  general,  the  deductions 
from  gross  income  allowable  to  a  nonresident  are  the  same  as 
allowed  to  a  resident,  except  that  they  are  allowed  only  if,  and 
to  the  extent  that,  they  are  connected  with  income  arising  from 
sources  within  the  State  of  New  York,  that  is,  in  connection  with 
property  owned  or  with  a  business,  trade,  profession  or  occupation 
carried  on  within  the  State.  (See  article  457.)  A  taxpayer 


600  Nonresidt 

shall  not  be  entitled  to  any  deductions  unless  his  return  discloses 
his  total  gross  income  from  sources  both  within  and  without  the 
State  to  the  extent  required  by  the  form  of  return.  (Tax  Laiv, 
section  367 ;  article  481.) 

ART.  432.  Business  expenses — Articles  111  to  125,  inclusive, 
under  the  title  of  "  Deductions  Allowed :  Business  Expenses  "  in 
the  resident  section,  apply  equally  to  a  nonresident  to  the  extent 
that  the  business  expenses  are  connected  with  a  business,  trade, 
profession  or  occupation  carried  on  within  the  State  of  Xew 
York,  but  not  otherwise.  (See  articles  ^15,  1+57  and  481.) 

ART.  433.  Taxes — Income  taxes  and  taxes  and  assessments 
for  benefits  of  a  kind  tending  to  increase  the  value  of  the  prop- 
erty assessed,  paid  or  accrued  within  the  taxable  year,  are  not 
deductible.  Estate  and  inheritance  taxes  are  not  deductible. 
All  other  taxes  paid  or  accrued  by  a  nonresident  are  deductible 
to  the  extent  that  they  are  connected  with  sources  of  income 
derived  from  property  owned  or  a  business,  trade,  profession  or 
occupation  carried  on  within  the  State.  (See  articles  J+15,  457 
and  481.) 

ART.  434.  Interest — A  nonresident  is  entitled  to  deduct  from 
gross  income  the  proportion  of  the  total  interest  paid  or  accrued 
in  connection  with  taxable  income  from  sources  within  the  State 
of  New  York,  which  the  amount  of  his  gross  income,  as  defined  in 
the  Tax  Law,  section  359,  and  as  provided  by  these  regulations, 
from  all  sources  within  the  State,  bears  to  his  total  gross  income 
from  all  sources  within  and  without  the  State.  His  total  gross 
income  is  his  gross  income,  as  defined  by  the  Tax  Law,  section  359, 
and  these  regulations,  plus  his  income  exempt  from  taxation, 
including  all  of  his  income  from  sources  without  the  State.  (See 
Tax  Law,  section  367,  and  article  481.) 

ART.  435.  losses — A  nonresident  taxpayer  may  deduct  from 
gross  income  on  account  of  losses  sustained  during  the  taxable 
year  and  not  compensated  by  insurance  or  otherwise,  as  follows: 

(a)  If  incurred  in  a  trade  or  business  carried  on  within  the 
State. 

(b)  If  incurred  in  any  transaction  within  the  State  entered 
into  for  profit  though  not   connected  with   a  trade  or  business. 
but   only   if   and   to   the   extent   that,   they   are   connected   with 
property  located  within  the  State  of  such  a  character  that  the 


Nonresident  Section  601 

income  flowing  from,  or  by  virtue  of  the  transaction,  if  a  profit 
had  been  realized,  would  have  been  included  in  the  gross  income 
of  a  nonresident. 

(c)  If  arising  from  fire,  storm,  shipwreck  or  other  casualty 
or  from  theft,  but  only  if  and  to  the  extent  that,  they  are  con- 
nected with  property  located  within  the  State  of  such  a  character, 
that  the  income  flowing  from  it,  or  by  virtue  of  it,  if  any,  would 
be  included  in  the  gross  income  of  a  nonresident.  (See 
article  481.) 

APPORTIONMENT  OF  INCOME  FROM  SOURCES  WITHIN  AND 
WITHOUT  THE  STATE  OF  NEW  YORK 

ART.  451.  Earnings  of  salesmen. —  The  gross  income  from  com- 
missions and  salaries  earned  by  nonresident  salesmen,  drummers, 
agents  or  others,  through  whose  services  receipts  or  remuneration 
inure  directly  to  the  employer,  for  services  performed  or  sales 
made  within  and  without  the  State  of  New  York,  includes  that 
proportion  of  the  commissions  and  salaries  received  which  the 
volume  of  business  transacted  by  such  employee  within  the  State 
of  New  York  bears  to  the  total  volume  of  business  transacted  by 
him  within  and  without  the  State.  (See  article  2(36.)  Allow- 
able deductions  must  be  apportioned  on  the  same  basis. 

ART.  452.  Salaries  and  wages  of  nonresident  employees  and 
officers. —  If  the  nature  of  the  employment  of  the  nonresident  is 
such  that  receipts  or  remuneration  for  services  rendered  do  not 
inure  directly  to  the  employer,  as  in  the  case  of  corporate  officers, 
clerical  employees,  laborers  or  other  like  classes  of  employees, 
gross  income  includes  that  proportion  of  the  total  amount  received 
for  services  which  the  time  employed  within  the  State  bears  to 
the  total  time  employed  both  within  and  without  the  State  of 
New  York.  (See  article  266.)  Allowable  deductions  must  be 
apportioned  on  the  same  basis. 

ART.  453.  Wages  of  nonresident  seamen — Resident  seamen, 
like  all  other  residents  of  the  State  of  New  York,  are  taxable  on 
their  entire  net  income  as  defined  by  the  law  and  these  regula- 
tions from  whatever  sources  derived.  Nonresident  seamen, 
however,  are  taxable  only  on  income  derived  from  sources  within 
the  State  of  New  York.  The  wage  of  a  nonresident  seaman 


602  Nonresident  Section 

earned  on  a  vessel  operating  exclusively  within  the  State  of  New 
York  is  regarded  as  income  received  from  sources  within  the 
State  of  New  York,  and  as  such,  is  taxable  income.  The  wage 
earned  by  a  nonresident  seaman  on  a  ship  which  is  operated 
exclusively  between  ports  of  the  State  of  New  York  and  foreign 
ports,  or  ports  of  other  states  is  not  to  be  regarded  as  from  sources 
within  the  State  of  New  York,  even  though  at  times  the  ship 
touches  at  a  port  within  the  State  of  New  York  and  remains 
there  a  reasonable  time  for  the  transaction  of  its  business.  The 
presence  within  the  State  of  a  seaman  aboard  a  ship  which  enters 
a  port  for  the  purpose  of  foreign  or  interstate  trade  is  merely 
transitory  and  the  wages  earned  during  that  period  by  a  nonresi- 
dent seaman  are  not  taxable.  Seamen  employed  on  vessels  operat- 
ing between  the  States  of  New  Jersey  and  New  York  within  the 
port  of  New  York,  are  regarded  as  earning  income  from  sources 
partly  within  and  partly  without  the  State  of  New  York.  One- 
half  of  the  compensation  earned  aboard  such  a  vessel  by  a  non- 
resident is  held  to  be  taxable  income.  Withholding  at  the  source 
applies  with  respect  to  all  compensation  of  nonresident  seamen, 
which  in  accordance  with  this  article,  constitutes  taxable  income. 

ART.  454'.  Income  from  vessels — The  tax  does  not  apply  to 
charter  money  or  freight  or  passage  payments,  received  by  a  non- 
resident owner  or  lessee  in  regard  to  a  vessel  which  is  operated 
exclusively  between  ports  of  the  State  of  New  York  and  foreign 
ports,  or  ports  of  other  states,  if  the  person  receiving  the  income 
maintains  no  regular  agency  in  the  State  of  New  York  and  is 
not  carrying  on  business  in  the  State  of  New  York.  (See  article 
415.) 

ART.  455.  Business  carried  on  wholly  within  the  State The 

entire  net  income  of  a  nonresident  from  a  business,  trade,  pro- 
fession or  occupation,  carried  on  within  the  State  (as  "business 
carried  on"  is  denned  in  article  415),  and  not  carried  on  else- 
where, as  so  denned,  is  income  from  a  source  within  the  State  of 
New  York  and  taxable  as  such. 

This  is  so,  even  though  the  nonresident  or  his  representatives 
travel  without  the  State  for  the  purposes  of  the  trade  or  business, 


Nonresident  Section  603 

that  is  for  the  purpose  of  buying,  selling,  financing  or  performing 
any  duties  in  connection  with  the  business,  and  even  though  sales 
may  be  made  to.  or  services  performed  for,  or  on  behalf  of,  per- 
sons or  corporations  located  without  the  State. 

ART.  456.  Business  carried  on  wholly  without  the  State — No 
part  of  the  net  income  of  a  nonresident  from  a  business,  trade, 
profession,  or  occupation,  carried  on  without  the  State  of  New 
York,  (as  "business  carried  on"  is  defined  in  article  415,)  and 
not  carried  on  as  so  defined  within  this  State,  is  taxable. 

This  is  so,  even  though  the  nonresident  or  his  representatives 
may  enter  the  State  for  the  purpose  of  buying,  selling,  financing, 
or  performing  any  other  duty  in  connection  with  the  business ;  and 
even  though  sales  may  be  made  to,  or  services  performed  for,  or  on 
behalf  of,  persons  or  corporations  located  within  the  State. 

ART.  457.  Apportionment  of  business  income  from  business  car- 
ried on  both  within  and  without  the  State —  If  a  nonresident,  or  a 
partnership  with  a  nonresident  member,  carries  on  business,  (as 
business  carried  on  "  is  defined  in  article  415,)  both  within  and 
without  the  State,  the  net  business  income  therefrom  must  be 
apportioned  so  as  to  allocate  to  the  State  of  New  York  a  propor- 
tion of  such  income  on  a  fair  and  equitable  basis,  in  accordance 
with  approved  methods  of  accounting. 

If  the  books  of  the  taxpayer  are  so  kept  as  regularly  to  disclose 
the  proportion  of  his  business  income,  which  is  earned  from 
sources  within  the  State,  the  return  of  the  taxpayer  shall  disclose 
both  the  total  income,  and  the  part  apportioned  to  the  State  of 
New  York,  and  the  basis  upon  which  such  apportionment  is  made. 
If  such  basis  is  approved  by  the  Comptroller,  the  return  will  be 
accepted. 

If  the  books  of  the  taxpayer  do  not  disclose  the  proportion  of 
his  net  income  from  sources  within  the  State  of  New  York,  his 
return,  or  if  the  basis  of  apportionment  used  by  him  shall  not 
be  approved  by  the  Comptroller,  his  amended  return  shall  disclose 
his  net  income  from  business  both  within  and  without  the  State, 
and  the  tax  will  be  calculated  and  collected  upon  the  portion  of 
his  total  net  income  from  business  which  the  aggregate  of  the 
NEW  YORK  STATE  FACTORS  bears  to  the  aggregate  of  the  TOTAL 
FACTORS  as  herein  defined. 


604  Nonresident  Section 

The  "  NEW  YORK  STATE  FACTORS"  include  the  following: 

(1)  The  average  of  the  value  of  his  real  property  and  tangible 
persona]  property  within  the  State,   (a)   at  the  beginning  of  the 
taxable  year  and  (b)  at  the  end  of  the  taxable  year,  but  only  of 
property  connected  with  the  business. 

(2)  The  total  wages,  salaries,  and  other  personal  service  com- 
pensation paid  during  the  taxable  year  to  employees  in  connection 
with  the  business  carried  on  (as  denned  in  article  415)  within  the 
State. 

(3)  The  gross  sales  or  charges  for  services  performed,  by  or 
through  an  agency  (of  the  kind  enumerated  in  article  415)  located 
within  the  State.     The  sales  or  charges  to  be  allocated  to  New 
York  shall  include  all  sales  negotiated  or  consummated  by  sales- 
men,  or   services   performed   by   other   representatives,    attached 
to  or  sent  from  offices,  or  other  agencies,  situated  within  the  State 
of  New  York. 

The  "TOTAL  FACTORS"  include  the  following: 

(1)  The  average  of  the  value  of   all  his  real  property  and 
tangible  personal  property   (a)    at  the  beginning  of  the  taxable 
year,  and  (b)   at  the  end  of  the  taxable  year,  both  within  and 
without    the    State,    but    only    of   property    connected    with    the 
business. 

(2)  The  total  wages,  salaries,  and  other  personal  service  com- 
pensation paid  by  him  during  the  taxable  year,  to  employees  con- 
nected with  the  business,  whether  within  or  without  the  State. 

(3)  The  gross  sales,  or  charges  for  services  performed,  whether 
within  or  without  the  State. 

"  Business  Income  "  as  used  in  this  article  excludes  profits  (or 
losses)  from  the  sale,  exchange  or  other  disposition  of  real  prop- 
erty, and  income  from  rents  and  royalties,  income  from  these 
sources  being  taxable  only  if  the  property  from  which  the  income 
was  derived  was  located  within  the  State  of  New  York,  and  in 
such  case  the  entire  net  income  from  these  sources  is  taxable. 
(See  articles  417  and  418.) 

ART.  470.  Alternative  basis  of  apportionment — The  provisions 
of  articles  451  to  470  dealing  with  the  apportionment  of  income 
of  nonresidents  earned  from  sources  both  within  and  without  the 


Nonresident  Section  605 

State  of  New  York  are  designed  to  allocate  to  the  State  of  New 
York  on  a  fair  and  equitable  basis  a  proportion  of  such  income 
earned  from  sources  both  within  and  without  the  State.  Any 
nonresident  may  submit  an  alternative  basis  of  apportionment 
with  respect  to  his  own  income  and  explain  that  basis  in  full  in 
his  return.  If  approved  by  the  Comptroller,  that  method  will 
be  accepted  instead  and  in  place  of  the  one  herein  prescribed. 

ALLOWANCE  OF  DEDUCTIONS  AND  CREDIT 
ART.  481.  Allowance  of  deductions  to  a  nonresident — Unless 
a  nonresident  individual  shall  render  a  return  of  income  as 
required  in  article  523,  the  tax  shall  be  collected  on  the  basis  of 
his  gross  income  (not  his  net  income)  from  sources  within  the 
State  of  New  York.  Where  a  nonresident  has  income  from 
sources  within  the  State  of  New  York,  and  a  return  of  income 
shall  not  be  filed  by  him  or  on  his  behalf,  the  Comptroller  will 
cause  an  estimate  of  the  taxable  income  of  such  nonresident  tax- 
payer to  be  made,  such  estimate  to  include  the  income  of  such  non- 
resident from  all  sources  within  the  State  of  New  York  concern- 
ing which  he  has  information,  and  for  such  purpose  may  examine 
or  cause  to  be  examined  the  books,  accounts  and  records  of  such 
taxpayer  and  he  will  then  compute  the  tax  of  such  nonresident 
taxpayer  without  allowance  for  deductions  or  credit  and  with 
penalties  and  interest.  (Tax  Law,  sections  367  and  313  and 
article  556.) 

ART.  482.  Allowance  of  credit  for  taxes — A  taxpayer  not  a 
resident  of  the  State  of  New  York  who  has  become  liable  to  in- 
come tax  to  the  State  or  country  wherein  he  resides,  upon  his  net 
income  for  the  taxable  year  derived  from  sources  within  the 
State  of  New  York,  shall  be  credited  with  such  proportion  of  the 
tax  payable  by  him  to  the  State  or  country  wherein  he  resides  as 
his  income  subject  to  taxation  under  the  New  York  State  Income 
Tax  Law  bears  to  his  entire  income  upon  which  the  tax  so  payable 
to  such  other  State  or  country  was  imposed ;  provided  such  credit 
shall  be  allowed  only  if  the  laws  of  such  State  or  country  grant 
a  substantially  similar  credit  to  residents  of  New  York  State 
subject  to  income  tax  under  such  laws.  (Tax  Law,  section  363.) 


Amount  of  "  taxes  payable  "  means  taxes  only  (no  credit  being 
given  for  amounts  representing  interest  or  penalties)  paid  or 
accrued  during  the  taxable  year  on  behalf  of  the  individual 
claiming  credit.  "  Other  State  or  country  "  includes  within  its 
meaning  territories,  possessions,  states  (other  than  New  York 
State)  and  any  foreign  sovereignty. 

AET.  483.  Conditions  of  allowance  of  credit — When  credit  is 
sought  for  income  taxes  paid  to  other  States  or  countries  pur- 
suant to  the  Tax  Law,  section  363,  (See  article  1+82}  the  Income 
Tax  return  form  of  the  individual  must  be  carefully  filled  out 
with  all  the  information  called  for  therein,  the  calculation  of 
credit  indicated,  and  executed  as  provided  therein.  When  the 
Comptroller  receives  proof  that  any  other  State  or  country  allows 
a  substantially  similar  credit  to  residents  of  this  State  within 
the  meaning  of  section  363  of  the  Tax  Law,  that  fact  will  be 
announced  from  time  to  time  by  amendment  to  this  article. 

ART.  484.  Re  determination  of  tax  when  credit  proves  incorrect. 
—  In  case  credit  has  been  taken  and  allowed  for  taxes  accrued,  or 
a  proportionate  share  thereof,  and  the  amount  that  is  actually  paid 
on  account  of  such  taxes,  or  a  proportionate  share  thereof,  is  not 
the  same  as  the  amount  of  such  credit,  or  in  case  any  tax  payment 
credited  is  refunded  in  whole  or  in  part,  the  taxpayer  shall 
immediately  notify  the  Comptroller.  The  Comptroller  will 
thereupon  redetermine  the  amount  of  the  income  tax  of  such  tax- 
payer for  the  year  or  years  for  which  such  incorrect  credit  was 
granted.  The  amount  of  tax,  if  any,  due  upon  such  redetermina- 
tion  shall  be  paid  by  the  taxpayer  upon  notice  and  demand  by  the 
Comptroller.  The  amount  of  tax,  if  any,  shown  by  such  rede- 
termination  to  have  been  overpaid  shall  be  immediately  refunded 
to  him.  (Tax  Law,  section  377  and  articles  571-574.} 


GENERAL  PROVISIONS 

RESIDENCE 

ART.  501.  Who  is  a  resident — For  the  purpose  of  the  Income 
Tax  Law,  a  resident  of  New  York  State  is  a  natural  person,  who 
has  a  fixed  and  settled  abode  in  this  State  to  which  he  returns 
from  incidental  and  temporary  absences  and  from  which  he  has 
no  present  intention  of  removing.  Such  residence  may  not  be, 
nor  be  intended  to  be,  of  long  duration  if  it  be  fixed  and  settled 
and  to  continue  for  the  time  necessary  to  accomplish  some  busi- 
ness or  other  purpose  and  is  not  merely  transient.  A  taxpayer's 
residence  for  purposes  of  taxation  is  not  necessarily  his  domicile 
for  election  purposes,  as  he  may  be  domiciled  outside  the  State 
and  still  be  taxable  as  a  resident  of  the  State.  As  the  question 
of  residence  is  largely  determined  by  the  intent  of  the  taxpayer 
and  by  the  facts  in  each  case,  the  Comptroller  may  require  a  state- 
ment of  the  circumstances  to  aid  him  in  determining  whether  the 
individual  be  a  resident  or  nonresident. 

ART.  502.  Who  is  a  nonresident — "  Nonresident "  means  an 
individual  whose  residence  is  not  within  the  State  of  New  York. 
Any  individual  living  in  the  State  of  New  York  who  is  not  a 
mere  transient  is  a  resident  of  the  State  of  New  York  for  pur- 
poses of  the  Income  Tax.  Whether  he  is  a  transient  or  not  is  de- 
termined by  his  intentions  with  regard  to  his  stay.  If  he  lives 
in  the  State  of  New  York  and  has  no  definite  intention  to  leave 
or  reside  elsewhere,  he  is  a  resident.  The  best  evidence  of  his 
intention  is  afforded  by  the  conduct,  acts  and  declarations  of  the 
individual.  The  typical  transient  is  one  who  stops  for  a  short 
time  in  the  course  of  a  journey  through  the  State  of  New  York, 
sometimes  performing  labor,  sometimes  not,  or  one  who  enters 
such  State  intending  only  to  stop  long  enough  to  carry  out  some 
purpose,  object  or  plan  not  involving  an  extended  stay.  A  mere 
floating  intention,  indefinite  as  to  time,  to  return  to  another  State 
or  country,  is  not  sufficient  to  constitute  him  a  transient. 

ART.  503.  Proof  of  residence — An  individual's  statements  as 
to  his  intention  with  regard  to  residence  are  not  conclusive,  but 

[607] 


608  General  Provisions 

when  unequivocal  will  determine  the  question  of  his  intention, 
unless  his  conduct,  acts  or  other  surrounding  circumstances  con- 
tradict the  statements.  It  sometimes  occurs  that  an  individual 
who  genuinely  intends  his  stay  to  be  transient  may  put  off  his 
departure  from  time  to  time  by  reason  of  changed  conditions, 
remaining  a  transient  though  living  in  the  State  of  New  York 
for  a  considerable  time.  The  fact  that  an  individual's  family  is 
without  the  State  does  riot  necessarily  indicate  that  he  is  a 
transient  rather  than  a  resident.  An  individual  who  enters  this 
State  intending  to  make  his  home  elsewhere  as  soon  as  he  has 
accumulated  a  sum  of  money  sufficient  to  provide  for  his  journey 
to  a  point  without  the  State  is  not  to  be  considered  a  transient 
even  though  his  expectation  in  this  regard  may  reasonably,  con- 
sidering the  rate  of  his  saving,  be  fulfilled  within  a  comparatively 
short  time. 

ART.  504.  Loss  of  residence — It  will  be  presumed  that  an 
individual  who  has  established  a  residence  in  the  State  of  New 
York,  as  outlined  above,  continues  to  be  a  resident  until  he  or 
his  family  establish  a  residence  without  the  State.  (Articles  501 
and  502.) 

INDIVIDUAL  RETURffS 

ART.  521.  Resident  individual  returns — Every  resident  indi- 
vidual (including  a  head  of  a  family)  whose  net  income  as  defined 
in  the  Tax  Law,  sections  357  and  358,  and  articles  11-14,  is 
$1,000  or  over  for  the  taxable  year  must  make  a  return  of  income 
unless  married  and  living  with  husband  or  wife  as  defined  in 
article  207.  The  return  shall  be  for  his  taxable  year,  whether 
calendar  or  fiscal.  Whether  or  not  an  individual  is  the  head  of 
a  family  or  has  dependents  is  immaterial  in  determining  his  liabil- 
ity to  render  a  return.  If  an  individual  is  a  married  person  liv- 
ing with  husband  or  wife,  no  return  need  be  made  where  their 
aggregate  net  income  is  less  than  $2,000;  but  a  separate  return 
must  be  made  by  each  of  them,  regardless  of  the  amount  of  the 
individual  income  of  each,  where  their  aggregate  net  income  is 
$2,000  or  over,  unless  they  join  in  a  single  return.  The  husband 
shall  include  in  his  return  the  income  derived  from  services 
rendered  by  the  wife  or  from  the  sale  of  products  of  her  labor 
if  she  does  not  file  a  separate  return  or  join  with  him  in  a  return 


General  Provisions  609 

setting  forth  her  income  separately.  For  returns  by  partnerships 
see  Tax  Law,  section  368,  and  articles  230  and  231 ;  by  fiduciaries, 
see  Tax  Law,  section  369,  and  articles  246-250.  When  specifi- 
cally directed  by  the  Comptroller  an  individual  must  file  the  re- 
turn of  his  income  whether  or  not  such  income  is  subject  to  taxa- 
tion under  this  law.  (Tax  Law,  section  373.) 

ART.  522.  Form  of  return  for  residents. —  The  return  shall  be 
on  Form  201  unless  the  taxpayer's  entire  gross  income  is  derived 
from  personal  services,  interest  and  dividends  or  from  partner- 
ships, estates  and  trusts.  The  return  shall  be  on  Form  200  if  the 
taxpayer's  gross  income  is  derived  from  personal  services,  interest 
and  dividends  or  from  partnerships,  estates  and  trusts,  but  any 
taxpayer  may  make  a  return  of  his  income  on  Form  201.  Forms 
are  provided  by  the  Comptroller  and  may  be  had  at  any  office 
of  the  State  Comptroller.  When  by  reason  of  illness,  absence, 
minority,  nonresidence  or  otherwise  the  person  liable  for  the  re- 
turn is  unable  to  make  it,  the  return  may  be  made  by  an  agent, 
guardian  or  other  person  charged  with  the  care  of  the  person  or 
property  of  such  taxpayer,  the  agent  assuming  the  responsibility 
for  making  the  return  and  incurring  liability  to  the  specific  pen- 
alties provided  for  erroneous,  false  or  fraudulent  returns.  (Tax 
Law,  section  376,  and  article  556.) 

ART.  523.  Nonresident  individual  returns — Every  nonresident 
individual  (including  the  head  of  a  family)  whose  net  income, 
as  defined  in  the  Tax  Law,  sections  357  and  358,  articles  11—14, 
from  sources  within  the  State  of  New  York  as  defined  in 
article  401,  is  $1,000  or  more  for  the  taxable  year,  must  make 
a  return  of  income  unless  married  and  living  with  husband 
or  wife  as  defined  in  article  207.  The  returns  shall  be  for  the 
taxable  year,  whether  calendar  or  fiscal.  Whether  or  not  an 
individual  is  the  head  of  a  family  or  has  dependents  is  immaterial 
in  determining  his  liability  to  render  a  return.  If  a  nonresident 
individual  is  a  married  person  living  with  husband  or  wife,  no 
return  need  be  made  where  the  aggregate  net  income  from  sources 
within  the  State  is  less  than  $2,000,  but  a  separate  return  must 
be  made  by  each  of  them,  regardless  of  the  amount  of  the  indi- 
vidual income  of  each,  where  the  aggregate  net  income  from 
sources  within  the  State  is  $2.000  or  over,  unless  they  join  in  a 
single  return. 
20 


610 


General  Provisions 


The  return  shall  be  on  Form  20 la  unless  the  entire  gross  income 
from  sources  within  the  state,  of  the  nonresident  taxpayer,  is 
derived  from  personal  services  and  from  partnerships,  estates  and 
trusts.  The  return  shall  he  on  Form  200'a  if  the  nonresident  tax- 
payer's gross  income  from  sources  within  the  State  is  derived  from 
personal  services,  and  from  partnerships,  estates  and  trusts. 

The  responsible  representative,?  of  taxpayers  not  resident  within 
the  State  in  connection  with  any  sources  of  income  which  such 
taxpayers  may  have  within  the  State  of  New  York  shall  make  a 
return  of  such  income,  and  shall  pay  any  and  all  tax,  imposed 
upon  the  income  received  by  them  in  behalf  of  their  taxpayer 
principals,  in  all  cases.  The  agent  of  a  nonresident  is  responsible 
for  a  correct  return  of  all  income  accruing  to  his  principal  within 
the  purview  of  the  agency.  The  agency  appointment  will  deter- 
mine how  completely  the  agent  is  substituted  for  the  principal 
for  tax  purposes. 

Where  upon  filing  a  return  of  income  it  appears  that  a  nonresi- 
dent taxpayer  is  not  liable  for  tax,  but  nevertheless  a  tax  shall 
have  been  withheld  at  the  source,  or  where  the  amount  withheld 
is  in  excess  of  his  tax  liability,  in  order  to  obtain  a  refund  on 
the  basis  of  the  showing  made  by  the  return  there  shall  be  at- 
tached to  it  a  statement  showing  accurately  the  amounts  of  tax 
withheld,  with  the  names  and  post-office  addresses  of  all  with- 
holding agents.  (Article  574.) 

AKT.  524.  Return  of  income  of  minor — An  individual  under 
twenty-one  years  of  age  is  required  to  render  a  return  of  income 
if  he  has  a  net  income  of  his  own  of  $1,000  or  over  for  the  tax- 
able year.  If  he  is  married,  see  article  521.  If  the  aggregate 
of  the  net  income  of  a  minor  from  any  property  which  he  pos- 
sesses, and  from  any  funds  held  in  trust  for  him  by  a  trustee  or 
guardian,  and  from  any  earnings  for  his  own  use,  is  at  least 
$1,000,  a  return  as  in  the  case  of  any  other  individual  must  be 
made  by  him  or  by  his  guardian  or  some  other  person  charged 
with  the  care  of  his  person  or  property  for  him.  (Article  248.) 
If,  however,  a  minor  is  dependent  upon  his  parent,  who  appro- 
priates or  may  appropriate  his  earnings,  such  earnings  are  income 
of  the  parent  and  not  of  the  minor  for  the  purpose  of  the  tax. 
In  the  absence  of  proof  to  the  contrary  a  parent  will  be  assumed 


General  Provisions  611 

not  to  have  emancipated  his  minor  child  and  must  include  in  his 
return  any  earnings  of  the  minor.  (See  article  115.)  Nonresi- 
dent minors  must  make  return  in  the  same  manner  and  of  the 
same  classes  of  income  as  other  nonresidents.  The  provisions  of 
article  523  are  equally  applicable  to  nonresident  minors. 

ART.  525.  Return  of  corporate  dividends — Dividends  on  stock 
of  domestic  corporations  or  resident  foreign  corporations  are 
prim  a  facie  income  of  the  record  owner  of  the  stock,  and  such 
record  owner  will  be  liable  for  any  tax  based  thereon,  unless  a 
disclosure  of  the  actual  ownership  is  made  to  the  Comptroller, 
which  shall  show  that  the  record  owner  is  not  the  actual  owner 
and  who  the  owner  is  and  his  address. 

ART.  526.  Accounting  period — The  return  of  a  taxpayer  is 
made  and  his  income  computed  for  his  taxable  year,  which  means 
his  fiscal  year,  or  the  calendar  year  if  he  has  not  established  a 
fiscal  year.  The  term  "  fiscal  year  "  means  an  accounting  period 
of  twelve  months  ending  on  the  last  day  of  any  month  other  than 
December.  No  fiscal  year  will,  however,  be  recognized  unless 
before  its  close  it  was  definitely  established  as  an  accounting 
period  by  the  taxpayer  and  the  books  of  such  taxpayer  were  kept 
in  accordance  therewith.  The  taxable  year  1919  is  the  calendar 
year  1919  or  any  fiscal  year  ending  during  the  calendar  year  1919. 
(Tax  Law,  section  350.)  A  taxpayer  having  an  existing  account- 
ing period  which  is  a  fiscal  year  within  the  meaning  of  the  statute 
not  only  needs  no  permission  to  make  his  return  on  the  basis 
of  such  a  taxable  year,  but  is  required  to  do  so.  A  person  having 
no  such  fiscal  year  must  make  return  on  the  basis  of  the  calendar 
year. 

A  taxpayer  must  make  his  return  for  the  accounting  period 
on  the  basis  of  which  his  books  are  kept ;  so  that  his  State  return, 
like  his  Federal  return,  must  be  for  a  fiscal  year  if  his  books  are 
kept  on  a  fiscal  year  basis. 

ART.  527.  Fiscal  year  ending:  in  1919 — The  method  provided 
for  computing  the  tax  for  a  fiscal  year  beginning  in  1918  and 
ending  in  1919  is  as  follows:  The  tax  attributable  to  the  calendar 
year  1919  is  found  by  computing  the  income  of  the  taxpayer 
in  accordance  with  the  statute  for  the  fiscal  year  and  determining 
the  proportion  of  such  income  which  the  portion  of  such  fiscal 


renerat 


'revisions 


me 

! 

;ar. 


year  falling  within  the  calendar  year  is  of  the  full  fiscal  year, 
and  computing  the  tax  on  such  amount.      The  personal  exempti 
must  be  correspondingly  apportioned. 

ART.  528.  Change  in  accounting  period —  If  a  taxpayer  chan 
his  accounting  period  he  shall  as  soon  as  possible  give  to  t 
Comptroller  written  notice  of  such  change  and  his  reasons  there- 
for. The  Comptroller  will  not  approve  a  change  of  the  basis 
of  computing  net  income  unless  such  notice  is  given  -at  a  time 
which  is  both  (a)  at  least  thirty  days  before  the  date  of  the  t 
payer's  return  on  the  basis  of  his  existing  taxable  year  and  (b) 
least  thirty  days  before  the  close  of  the  proposed  taxable  yea 
If  the  change  in  the  basis  of  computing  the  net  income  of  the 
taxpayer  is  approved  by  the  Comptroller  the  taxpayer  shall  there- 
after make  his  returns  upon  the  basis  of  the  new  accounting  period 
in  accordance  with  the  requirement  of  section  3YO  of  the  statute 
and  his  net  income  shall  be  computed  as  therein  provided.  A  tax- 
payer subject  to  Federal  tax  shall  file  with  his  application  a  copy 
of  the  consent  of  the  Commissioner  of  Internal  Revenue  to  change 
the  basis  of  his  return  for  Federal  tax  purposes.  The  require- 
ment of  notice  to  the  Comptroller  will  be  modified  in  such  cases 
with  respect  to  time,  and  where  a  change  is  authorized,  it  will 
be  made  effective  at  the  same  date  as  that  authorized  by  the  Com- 
missioner of  Internal  Revenue. 

ART.  529.  Returns  when  accounting  period  changed — No  return 
may  be  made  for  a  period  of  more  than  twelve  months.  A  separate 
return  for  a  fractional  part  of  a  year  is,  therefore,  required  when- 
ever there  is  a  change  with  the  approval  of  the  Comptroller  in  the 
basis  of  computing  net  income  from  one  taxable  year  to  another 
taxable  year,  and  the  exemptions  allowed  shall  be  reduced  re- 
spectively to  amounts  which  bear  the  same  ratio  to  the  full  exemp- 
tions provided  for  as  the  number  of  months  in  such  period  bears 
to  twelve  months.  The  separate  returns  shall  be  filed  for  the 
period  from  the  close  of  the  old  taxable  year  to  the  beginning 
of  the  new  taxable  year.  -See  article  527  with  reference  to  first 
returns  for  fiscal  year  ending  in  1919.  (Tax  Law.,  sections  370 
and  371,  and  articles  541-544  and  551.)  The  tax  on  net  income 
shall  be  computed  on  the  basis  of  the  period  for  which  a  separate 
return  is  made. 


General  Provisions  613 

ART.  530.  Verification  of  returns — All  income  tax  returns  must 
be  verified  under  oath  or  affirmation  before  an  officer  duly  author- 
ized to  administer  oaths  either  by  the  laws  of  the  United  States 
or  the  laws  of  the  state  or  territory  where  such  officer  resides. 
Persons  in  the  naval  or  military  service  of  the  United  States  may 
verify  their  returns  before  any  official  authorized  to  administer 
oaths  for  the  purpose  of  those  services.  Income  tax  returns 
executed  abroad  may  be  attested  before  United  States  consular 
officers. 

ART.  531.  Use  of  prescribed  forms. —  Copies  of  the  prescribed 
return  forms  will  so  far  as  possible  be  furnished  taxpayers  by 
the  Comptroller.  Failure  on  the  part  of  any  taxpayer  to  receive 
a  blank  form  will  not,  however,  excuse  him  from  making  a  return. 
Taxpayers  not  supplied  with  the  proper  forms  should  make  appli- 
cation therefor  to  the  'Comptroller,  or  at  any  district  office,  in 
ample  time  to  have  their  returns  prepared,  verified  and  filed  on 
or  before  March  fifteenth  following  the  close  of  the  taxable  year. 
Each  taxpayer  should  carefully  prepare  his  return  so  as  to  fully 
and  clearly  set  forth  the  data  therein  called  for.  Imperfect  or 
incorrect  returns  will  not  be  accepted  as  meeting  the  requirements 
of  the  statute.  In  lack  of  a  prescribed  form  a  statement  made  by 
a  taxpayer  disclosing  his  gross  income  and  the  deductions  there- 
from may  be  accepted  as  a  tentative  return,  and  if  filed  within 
the  prescribed  time  a  return  so  made  will  relieve  the  taxpayer 
from  liability  to  penalties,  provided  that  without  unnecessary 
delay  such  a  tentative  return  is  replaced  by  a  return  made  on  the 
proper  form.  The  forms  and  the  instructions  contained  therein 
have  the  force  and  effect  of  regulations.  Each  question  must  be 
answered  and  each  direction  complied  with  in  the  same  manner 
as  if  the  forms  and  instructions  were  embodied  in  these 
regulations. 

TIME  AND  PLACE  FOR  FILING  RETURN 
ART.  541.  Time  for  filing  return. —  A  return  of  income  must 
be  made  on  or  before  the  fifteenth  day  of  March  following  the 
close  of  the  taxpayer's  taxable  year,  and  must  include  the  tax- 
payer's net  income  for  such  taxable  year.  (Tax  Lair,  section  371.) 
The  last  due  date  is  the  last  day  upon  which  a  return  is  required  to 
be  filed  in  accordance  with  the  provisions  of  the  statute  or  the  last 


614  General  Provisions 

clay  of  the  period  covered  by  an  extension  of  time  granted  by  the 
Comptroller.  When  the  last  due  date  falls  on  Sunday  or  a  legal 
holiday,  the  last  due  date  for  filing  returns  will  be  the  day  following 
such  Sunday  or  legal  holiday.  If  placed  in  the  mails  the  return 
should  be  posted  in  ample  time  to  reach  the  Comptroller's  office 
or  any  district  office  of  the  Income  Tax  Bureau,  under  ordinary 
handling  of  the  mails,  on  or  before  the  date  on  which  the  return 
is  required  to  be  filed.  Mailed  returns  should  be  addressed: 
"  IN".  Y.  State  Income  Tax  Bureau/7  and  the  address  of  the  district 
office  to  which  it  is  sent.  If  a  return  is  made  and  placed  in  the 
mails  in  due  course,  properly  addressed  and  postage  paid,  in  ample 
time  to  reach  the  office  of  the  Comptroller  or  a  district  office  on 
or  before  the  last  due  date,  no  penalty  will  attach  should  the  return 
not  be  actually  received  by  such  officer  until' subsequent  to  that 
date.  Where  a  question  may  be  raised  as  to  whether  or  not  the 
return  was  posted  in  ample  time  to  reach  the  Comptroller's  office 
or  a  district  office  on  or  before  the  due  date,  the  envelope  in  which 
the  return  was  transmitted  will  be  preserved  by  the  Comptroller 
with  the  return. 

ART.  542.  Time  for  filing  returns  upon  death  or  termination  of 
trust — As  soon  as  possible  after  his  appointment  and  qualifica- 
tion, without  waiting  for  the  close  of  the  taxable  year,  an  executor 
or  administrator  may  file  a  return  of  income  for  the  decedent. 
Upon  the  completion  of  the  administration  of  an  estate  and  final 
accounting  an  executor  or  administrator  shall  file  a  return  of  in- 
come of  the  estate  for  the  portion  of  the  taxable  year  in  which  the 
administration  was  closed.  An  ancillary  administrator  need 
make  no  separate  return  if  the  domiciliary  administrator  includes 
in  his  return  the  entire  income  of  the  estate.  Similarly,  upon  the 
termination  of  any  other  trust  the  trustee  may  make  a  return 
without  waiting  for  the  close  of  the  taxable  year.  In  any  such 
case  the  tax  must  be  paid  at  the  time  the  return  is  filed.  The 
payment  of  the  tax  before  the  end  of  the  taxable  year  in  such  cir- 
cumstances does  not  relieve  the  taxpayer  from  liability  for  any 
additional  tax  which  may  subsequently  be  imposed  upon  income 
of  the  taxable  year. 

ART.  543.  Extension  of  time  by  Comptroller — It  is  important 
that  the  taxpayer  render  on  or  before  the  return  due  date  a  return 


General  Provisions  615 

as  complete  and  final  as  it  is  possible  for  him  to  prepare.  How- 
ever, whenever  good  cause  exists  by  reason  of  sickness,  absence 
or  otherwise,  the  Comptroller  is  authorized  to  grant  an  extension 
of  time  in  which  such  return  may  be  filed  where  in  his  judgment 
such  further  time  is  actually  required  for  the  making  of  an 
accurate  return,  not  however,  in  any  case  exceeding  six  months, 
except  in  cases  of  taxpayers  who  are  abroad.  (Tax  Law,  section 
871.)  If  the  time  for  filing  the  return  shall  be  extended  the 
taxpayer  shall  pay,  in  addition  to  the  tax,  interest  thereon 
at  the  rate  of  6  per  centum  per  annum  from  the  time  when  the 
return  was  originally  required  to  be  filed,  to  the  time  of  actual 
payment.  (Tax  L&w,  section  377.)  The  application  for  each 
extension  must  be  made  prior  to  the  expiration  of  the  period 
for  which  the  extension  is  desired.  As  a  condition  of  granting 
an  extension  of  time  for  filing  a  return  the  Comptroller  may 
require  the  submission  of  a  tentative  return  and  payment  of  the 
tax  based  on  such  tentative  return. 

ART.  544.  Place  for  filing  returns — Eeturns  of  income  must 
be  delivered  or  mailed  to  any  one  of  the  district  offices  of  the 
Income  Tax  Bureau.  The  following  are  the  addresses  of  the 
district  offices  of  the  Income  Tax  Bureau: 

District  No.  1.  Albany. 

District  No.  2.  Borough  of  Manhattan,  New  York  City. 

District  No.  3.  Borough  of  Brooklyn,  New  York  City. 

District  No.  4.  Borough  of  The  Bronx,  ,New  York  City. 

District  No.  5.  Jamaica. 

District  No.  6.  White  Plains. 

District  No.  7.  Buffalo. 

District  No.  8.  Rochester. 

District  No.  9.  Syracuse. 

District  No.  10.  Utica. 

District  No.  11.  Elmira. 

District  No.  12.  Binghamton. 

District  No.  13.   Kingston. 

Partnership  returns  (Form  204)  and  fiduciary  returns 
(Form  205)  should  be  sent  to  the  office  of  the  New  York  State 
Income  Tax  Bureau  at  Albany,  N.  Y. 


o!6  General  Provisions 

PAYMENT  OF  TAXES 

ART.  551.  Time  for  payment  of  tax — The  tax,  unless  paid  at 
the  source,  is  to  be  paid  to  the  Comptroller  at  the  time  of  filing 
the  return.  (Tax  Law,  section  371,  and  articles  541-544-)  An 
unconditional  extension  of  time  for  filing  a  return  will  postpone 
the  date  for  payment  of  the  tax,  but  see  article  543  with  reference 
to  tentative  returns.  Upon  computation  of  the  tax,  if  the  amount 
paid  exceeds  the  correct  amount  of  the  tax,  the  excess  shall  be 
refunded  to  the  taxpayer.  If  the  amount  paid  is  less  than  the 
correct  amount  of  the  tax  then  due,  the  difference  shall  be  paid 
within  thirty  days  after  notice  of  the  correct  tax  as  computed  by 
the  Comptroller  is  mailed  to  the  taxpayer.  (Tax  Law,  section  377 
and  articles  57 1-57 4-) 

ART.  552.  Receipts  for  tax  payments — The  Comptroller  will 
issue  a  cash  register  receipt  for  every  tax  which  is  paid  in  cash. 
In  the  case  of  payments  in  cash,  the  taxpayer  should  in  every 
instance  require  a  cash  register  receipt.  In  the  case  of  payments 
made  by  check,  the  cancelled  check  is  usually  a  sufficient  receipt, 
but  the  Comptroller  will  on  request  issue  an  additional  receipt. 

ART.  553.  Interest  on  tax — Where  the  time  for  the  payment 
of  any  tax  is  postponed  at  the  request  of  the  taxpayer,  interest 
at  the  rate  of  6  per  centum  per  annum  is  added  from  the  original 
due  date  to  the  date  of  payment.  If  any  tax  be  not  paid  when 
required  by  the  provisions  of  the  statute  or  in  the  case  of  addi- 
tional taxes  at  the  time  designated  by  the  Comptroller,  the  tax- 
payer shall  pay  5  per  centum  of  such  tax  plus  1  per  centum 
per  month  for  each  month  or  fraction  thereof  such  tax  remains 
unpaid  after  such  required  or  designated  time,  in  addition  to 
the  amount  of  such  tax.  (Tax  Law,  section  37  9  f  subdivision  2.} 

ART.  554.  Payment  of  tax  by  uncertified  checks. —  The  Comp- 
troller will  accept  uncertified  checks  in  payment  of  income  taxes, 
provided  such  checks  are  collectible  at  par,  that  is,  for  their  full 
amount  without  any  deduction  for  exchange  or  other  charges. 
The  day  on  which  the  Comptroller  receives  the  check  will  be  con- 
sidered the  date  of  payment  so  far  as  the  taxpayer  is  concerned 
unless  the  check  is  returned  dishonored.  If  one  check  is 
remitted  to  cover  two  or  more  persons'  taxes,  the  remittance  must 


General  Provisions  617 

be  accompanied  by  a  letter  of  transmittal  stating  (a)  the  name 
of  the  drawer  of  the  check;  (b)  the  amount  of  the  check;  (c)  the 
amount  of  any  cash,  money  order  or  other  instrument  included 
in  the  same  remittance;  (d)  the  name  of  each  person  whose  tax 
is  to  be  paid  by  the  remittance;  and  (e)  the  amount  of  the  pay- 
ment on  account  of  each  person. 

ART.  555.  Procedure  with  respect  to  dishonored  checks — If 
any  check  is  returned  unpaid,  all  expenses  incident  to  collection 
of  such  a  check  will  be  charged  to  the  taxpayer.  If  any  taxpayer 
whose  check  has  been  returned  uncollected  by  the  depositary  bank 
should  fail  at  once  to  make  the  check  good,  the  Comptroller  will 
proceed  to  collect  the  tax  as  though  no  check  had  been  given. 
A  taxpayer  who  tenders  a  certified  check  in  payment  for  taxes 
is  also  not  released  from  his  obligation  until  the  check  has  been 
paid. 

AKT.  556.  Penalties —  l.  A  person  who  intentionally  fails  to 
make  a  return  is  guilty  of  a  misdemeanor  punishable  by  a  fine 
not  exceeding  $1,000  or  imprisonment  not  exceeding  one  year, 
or  both,  and  in  addition  is  liable  to  taxation  at  twice  the  ordinary 
rate. 

2.  If  any  person,  liable  to  taxation  under  the  law,  makes  any 
false  or  fraudulent  return   or   statement,   with   intent   to  evade 
any  tax   imposed  by  the  law,   he  is  guilty   of   a   misdemeanor 
punishable  by  a  fine  not  exceeding  $1,000  or  imprisonment  not 
exceeding  one  year,  or  both,  and  in  addition  is  liable  to  taxation 
at  twice  the  ordinary  rate  upon  the  additional  amount  of  income 
discovered  to  be  taxable. 

3.  A  person  who  fails  to  make  a  return  within  the  required 
time,  but  who  voluntarily  makes  a  correct  return  within  sixty  (60) 
days  is  subject  to  a  penalty  of  5  per  centum  of  the  tax  (in  no 
case  less  than   $2)    and   an   additional   1   per   centum   for  each 
month  or  fraction   of   a  month  during  which  the  tax  remains 
unpaid. 

4.  A  person  who,  without  intent  to  defraud,  fails  to  make  a 
return  within  the  required  time  or  a  voluntary  return  within 
sixty    (60)    days   thereafter,   is   liable  to   taxation   at   twice  the 
ordinary  rate,  in  addition  to  the  penalty  referred  to  in  the  follow- 
ing paragraph. 


618  General  Provisions 

5.  A  person  who  fails  to  pay  the  tax  when  due  is  subject  to  a 
penalty  of  5  per  centum  of  the  amount  due  but  not  paid,  plus 
1  per  centum  for  each  month  or  fraction  of  a  month  during  which 
the  tax  remains  unpaid.  (Tax  Law,  sections  376,  377  and  379.) 

CORRECTION  OF  RETURNS 

AKT.  571.  Comptroller's  power  of  revision — If,  in  the  opinion 
of  the  Comptroller,  the  return  of  any  taxpayer  in  any  essential 
respect  is  incorrect  the  Comptroller  may  revise  such  return  and 
may  audit  and  state  an  account  according  to  such  revised  return 
for  the  amount  due  from  such  taxpayer  for  taxes,  penalties  and 
interest.  If  any  taxpayer  fails  to  make  a  return  the  Comptroller 
may  make  an  estimate  of  the  taxable  income  of  such  taxpayer  from 
any  information  in  his  possession  and  for  this  purpose  may 
examine  or  cause  to  be  examined,  the  books  and  records  of  such 
taxpayer,  and  may  take  testimony  and  require  proof  material  for 
his  information,  and  may  audit  and  state  an  account  according 
to  such  information  of  the  amount  due  from  the  taxpayer  for 
taxes,  penalties  and  interest.  (Tax  Law,  section  373.) 

ART.  572.  Authority  for  abatement  and  refund  of  tax — 
Authority  for  the  refund  or  abatement  of  taxes  erroneously  col- 
lected or  assessed  is  contained  in  section  377  of  the  Tax  Law. 

ART.  573.  Claim  for  abatement — Where  the  Comptroller  has 
made  an  additional  assessment,  the  amount  of  such  additional 
assessment  is  payable  within  thirty  days  from  the  date  of  notice 
thereof.  However,  the  taxpayer  will  be  afforded  opportunity  to 
offer  proof  as  to  the  incorrectness  of  all  or  any  part  of  the  addi- 
tional assessment  and  may  during  the  thirty-day  period  file  claim 
for  abatement  of  all  or  any  part  thereof.  The  application  must 
be  sustained  by  the  affidavit  of  the  party  against  whom  the  tax 
was  assessed,  or  of  other  parties  cognizant  of  the  facts.  When 
a  tax  has  been  audited  and  stated  by  the  Comptroller  the  pre- 
sumption is  that  the  assessment  is  correct,  and  the  additional 
assessment  must  be  paid  when  due,  unless  the  Comptroller  has 
in  the  meantime  abated  all  or  a  part  of  it.  The  burden  of  proof 
in  rebutting  the  presumption  and  showing  that  it  was  improperly 
or  illegally  assessed,  or  that  relief  should  be  given  under  sec- 


General  Provisions  619 

tion  374  of  the  statute,  rests  upon  the  applicant  for  abatement. 
The  affidavits  must,  therefore,  contain  full  and  explicit  statements 
of  all  the  material  facts  relating  to  the  claim  in  support  of  which 
they  are  offered  and  to  the  proper  consideration  of  which  they 
are  essential.  The  legality  of  the  claim  is  to  be  determined  by 
the  Comptroller  upon  the  facts  presented  by  the  affidavits.  The 
filing  of  a  claim  for  abatement  does  not  operate  as  a  suspension 
of  the  collection  of  the  tax.  The  tax  must  be  paid  within  the 
thirty-day  period,  except  as  to  any  part  thereof  which  the  Comp- 
troller has  advised  the  taxpayer  has  been  abated. 

AKT.  574.  Claim  for  refund.—  Claims  by  the  taxpayer  for  the 
refunding  of  taxes  and  penalties  erroneously  or  illegally  collected 
shall  be  made  on  Form  110.  In  this  case,  as  in  that  of  claims  for 
abatement,  the  burden  of  proof  rests  upon  the  claimant.  All 
the  facts  relied  upon  in  support  of  the  claim  should  be  clearly 
set  forth  under  oath.  It  should  be  accompanied  by  the  Comp- 
troller's receipt  or  the  cancelled  check  showing  payment  of  the 
tax.  The  affidavit  may  be  made  by  an  agent  of  the  person 
assessed.  Checks  in  payment  of  claims  allowed  will  be  drawn 
in  the  names  of  the  persons  entitled  to  the  money  and  shall  unless 
otherwise  directed  be  sent  by  the  Comptroller  directly  to  the 
proper  persons  or  their  duly  authorized  attorneys  or  agents.  In 
the  case  of  mere  overpayments  by  taxpayers  the  Comptroller  may 
repay  the  excess.  The  Comptroller  has  no  authority  to  refund 
on  equitable  grounds  penalties  legally  collected. 
8 


620  General  Provisions 


RETURNS  TO  BE  PUBLIC  RECORDS 

AKT.  581.  Inspection  of  return? — Subdivision  1  of  the  Tax 
Law,  section  384,  provides  as  follows:  "Except  in  accordance 
with  proper  judicial  order  or  as  otherwise  provided  by  law,  it 
shall  be  unlawful  for  the  Comptroller,  any  agent,  clerk  or  other 
officer  or  employee  to  divulge  or  make  known  in  any  manner  the 
amount  of  income  or  any  particulars  set  forth  or  disclosed  in 
any  report  or  return  required  under  this  article.  Nothing  herein 
shall  be  construed  to  prohibit  the  publication  of  statistics  so  class- 
ified as  to  prevent  the  identification  of  particular  reports  or 
returns  and  the  items  thereof,  or  the  inspection  by  the  Attorney- 
General  or  other  legal  representative  of  the  State  of  the  report 
or  return  of  any  taxpayer  who  shall  bring  action  to  set  aside  or 
review  the  tax  based  thereon,  or  against  whom  an  action  or  pro- 
ceeding has  been  instituted  in  accordance  with  the  provisions  of 
sections  380  and  381  of  this  chapter.  Reports  and  returns  shall 
be  preserved  for  three  years  and  thereafter  until  the  Comptroller 
orders  them  to  be  destroyed." 

ART.  582.  Penalties  for  disclosure  of  returns. —  Subdivision  2 
of  the  Tax  Law,  section  384,  provides  as  follows:  "Any  offense 
against  subdivision  one  of  this  section  shall  be  punished  by  a  fine 
not  exceeding  one  thousand  dollars  or  by  imprisonment  not  exceed- 
ing one  year,  or  both,  at  the  discretion  of  the  court,  and  if  the 
offender  be  an  officer  or  employee  of  the  state  he  shall  be  dismissed 
from  office  and  be  incapable  of  holding  any  public  office  in  this 
state  for  a  period  of  five  years  thereafter." 


PROMULGATION  OF  REGULATIONS 

Pursuant  to  the  authority  conferred  by  chapter  627  of  the 
Laws  of  1919,  the  foregoing  regulations  are  hereby  made  and 
promulgated,  and  any  regulations  and  rulings  inconsistent  there- 
with are  hereby  revoked. 


Albany,  N.  Y.  Comptroller. 


APPENDIX  I 


Table    showing   where    subjects    covered   by    Federal   Regula- 
tions 45  are  considered  in  these  regulations. 


U.S. 
Regulations 

No.  45 
Article  No. 

1 

2 

3 

4 
21 
22 
23 
24 
25 
26 
31 
32 
33 
34 
35 
36 

37 

38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
51 
52 
53 
54 
71 
72 
73 
74 
75 
76 
77 


Subject 

Subject 

considered  in 

u.  s. 

considered  in 

Comptroller's 
Regulations 
Article  No. 

Regulations 
No.  45 
Article  No. 

Comptroller's 
Regulations 
Article  No. 

1 

83 

77 

2 

84 

124 

3 

85 

24 

501 

86 

78 

11 

87 

79 

12 

88 

80 

13 

91 

411 

14 

T412 

526 

92 

J418 

528 

[456 

21 

93 

419 

23 

101 

111 

25 

102 

112 

26 

103 

113 

28 

104 

114 

29 

105 

115 

(22 
J27 

106 

107 

116 
117 

30 

108 

119 

31 

109 

120 

32 

110 

122 

33 

111 

123 

34 

121 

136 

35 

122 

137 

36 

131 

141 

37 

132 

142 

38 

133 

143 

40 

134 

114 

42 

141 

161 

43 

142 

152 

44 

143 

153 

45 

144 

154 

46 

145 

155 

71 

151 

161 

72 

152 

162 

73 

153 

163 

74 

154 

164 

75 

161 

171 

76 

162 

172 

74 

163 

173 

[621] 


622 


Appendix  I 


Subject 
U.  S.             considered  in 
Regulations          Comptroller's 
No.  45              Regulations 
Article  No.            Article  No. 

U.S. 
Regulations 
No.  45 
Article  No. 

164                174 

407 

165             175 

411 

166             176 

412 

167             177 

421 

168             178 

422 

169             179 

423 

170             180 

424 

171             181 

425 

201             190 

431 

251             201 

441 

271             431 

442 

121 

444 

\S 

447 
448 

125 

1001 

292             118 

1003 

293             125 

1004 

294             121 

1005 

302             206 

1006 

303             207 

1021 

304             208 

1031 

305             209 

1032 

311             481 

1036 

312             502 

1041 

313             503 

1051 

314             504 

1071 

321             226 

1072 

322             229 

1074 

341             251 

1075 

342             244 

1080 

343             253 

1091 

344             255 

1094 

345             245 

1503 

361             261 

1505 

362             263 

1521 

370             270 

1522 

381             482 

1541 

382             482 

1544 

383             483 

1545 

384             484 

1547 

401             521 

1548 

402             522 

1549 

403             524 

1561 

404             523 

1562 

405             525 

1563 

406             530 

1564 

Subject 

considered  in 

Comptroller's 

Regulations 

Article  No. 

531 

230 

231 

246 

248 

249 

250 

247 

529 

541 

542 

543 

551 

544 

551 

553 

556 

556 

556 

552 

572 

573 

574 

556 

288 

281 

286 

289 

287 

290 

581 

582 

228 

227 

240 

241 

61 

62 

63 

64 

65 

66 

91 

93 

94 

95 


Appendix  I 


623 


Subject 

Subject 

u.  s. 

considered  in 

U.  S. 

considered  in 

Regulations 
No.  45 
Article  No. 

Comptroller's 
Regulations 
Article  No. 

Regulations 
No.  45 
Article  No. 

Comptroller's 
Regulations 
Article  No. 

1565 

96 

1582 

217 

1566 

97 

1583 

218 

1567 

98 

1584 

219 

1568 

99 

1585 

220 

1569 

100 

1625 

527 

1570 

101 

1733 

554 

1581 

216 

1734 

555 

APPENDIX  II 

THE  TAX  LAW 
ARTICLE  161 

TAXES  UPON  AND  WITH  RESPECT  TO  PERSONAL  INCOMES. 

Section  350.  Definitions. 

351.  Imposition  of  income  tax. 

352.  Exemption  of  certain  personal  property. 

353.  Ascertainment  of  gain  and  loss. 

354.  Exchange  of  property. 

355.  Gain  through  exchange. 

356.  Inventory. 

357.  Net  income  defined. 

358.  Computation  of  net  income. 

359.  Gross  income  defined. 

360.  Deductions. 

361.  Items  not  deductible. 

362.  Exemptions. 

363.  Credit  for  taxes  in  case  of  taxpayers  other  than 

residents  of  the  state. 

364.  Partnerships. 

365.  Estates  and  trusts. 

366.  Information  and  payment  at  source. 

367.  Taxpayers'  returns. 

368.  Partnership  returns. 

369.  Fiduciary  returns. 

370.  Returns  when  accounting  period  changed. 

371.  Time  and  place  of  filing  returns. 

372.  Administration  of  income  tax  law. 

373.  Powers  of  comptroller. 

374.  Revision  and  readjustment  of  accounts  by  comp- 

troller. 

375.  Review  of  determination  of  comptroller  by  certio- 

rari  and  regulations  as  to  writ. 

376.  Penalties. 


1  Added  by  Laws  of  1919.  Chapter  627.  in  effect  May  14,  1919. 

[624] 


Appendix  II  625 

Section  377.  When  payable. 

378.  Notice  of  assessment. 

379.  Collection  of  taxes;  penalties  and  interest. 

380.  Warrant  for  the  collection  of  taxes. 

381.  Action  for  recovery  of  taxes. 

382.  Distribution  of  the  income  tax. 

383.  Comptroller  to  make  regulations  and  collect  facts. 

384.  Secrecy  required  of  officials;  penalty  for  violation. 

385.  Contract  to  assume  income  tax  illegal. 

Section  350.    Definitions.      For  the  purpose  of  this  article  and 
unless  otherwise  required  by  the  context: 

1.  The  word  "  comptroller  "  means  the  state  comptroller. 

2.  The  word  " taxpayer"  includes  any  person,  trust  or  estate 
subject  to  a  tax  imposed  by  this  article,  or  whose  income  is  in 
whole  or  in  part  subject  to  a  tax  imposed  by  this  article,  and  does 
not  include  corporations 

3.  The  words  "military  or  naval  forces  of  the  United  States" 
include  the  marine  corps,  the  coast  guard,  the  army  nurse  corps, 
female,  and  the  navy  nurse  corps,  female,  but  this  shall  not  be 
deemed  to  exclude  other  units  otherwise  included  within  such 
words. 

4.  The  words  "taxable  year"  mean  the  calendar  year,  or  the 
fiscal  year  ending  during  such  calendar  year,  upon  the  basis  of 
which  the  net  income  is  computed  under  this  article.     The  words 
"fiscal  year"  mean  an  accounting  period  of  twelve  months,  end- 
ing on  the  last  day  of  any  month  other  than  December. 

5.  The  word  "fiduciary"  means  a  guardian,  trustee,  executor, 
administrator,  receiver,  conservator,  or  any  person,  whether  indi- 
vidual or  corporate,   acting  in   any  fiduciary  capacity  for   any 
person,  trust  or  estate. 

fi.  Thp  word  "  paid  "  for  the  purposes  of  the  deductions  and 
credits  under  this  article,  means  "paid  or  accrued  "  or  "paid  or 
incurred."  and  the  terms  "paid  or  incurred"  and  "paid  or 
accrued  "  shall  be  construed  according  to  the  method  of  account- 
ing upon  the  basis  of  which  the  not  income  is  computed,  under 
this  article.  The  term  "received"  for  the  purpose  of  the  com- 
putation of  net  income  under  this  article,  means  "received  or 


626  Appendix  II 

accrued  "  and  the  term  "  received  or  accrued  "  shall  be  construed 
according  to  the  method  of  accounting  upon  the  basis  of  which 
the  net  income  is  computed  under  this  article. 

7.  The  word  "  resident "  applies  only  to  natural  persons  and 
includes   for   the    purpose    of   determining   liability   to    the    tax 
imposed  by  this  article  upon  or  with  reference  to  the  income  of 
any  taxable  year,  commencing  with  the  year  nineteen  hundred 
and  nineteen,    any  person  who  shall,   at   any   time  on  or   after 
January  first   and  not  later  than  March  fifteenth   of  the  next 
succeeding  calendar  year,  be  or  become  a  resident  of  the  state. 

8.  The  word  "  dividend "  means  any  distribution  made  by  a 
corporation  out  of  its  earnings  or  profits  to  its  shareholders  or 
members,  whether  in  cash  or  in  other  property  or  in  stock  of  the 
corporation. 

9.  The  words  "foreign  country"   or  "foreign  government" 
mean    any    jurisdiction    other    than    one    embraced    within    the 
United  States.      The  words  "  United  States  "  include  the  states, 
the    territories    of    Alaska    and    Hawaii    and    the    District    of 
Columbia. 

10.  The  words  "withholding  agent"  include  all  individuals, 
corporations,  associations  and  partnerships,  in  whatever  capacity 
acting,  including  lessees,  or  mortgagors  of  real  or  personal  prop- 
erty, fiduciaries,  employers,  and  all  officers  and  employees  of  the 
state,   or  of  any  municipal  corporation  or  political   subdivision 
of  the   state,   having  the   control,   receipt,   custody,   disposal   or 
payment,  of  interest,  rent,  salaries,  wages,  premiums,  annuities, 
compensation,    remunerations,    emoluments    or    other    fixed    or 
determinable    annual    or    periodical    gains,    profits    and    income 
taxable  under  this  article. 

§  351.  Imposition  of  income  tax.  A  tax  is  hereby  imposed 
upon  every  resident  of  the  state,  which  tax  shall  be  levied,  col- 
lected and  paid  annually  upon  and  with  respect  to  his  entire  net 
income  as  herein  defined  at  rates  as  follows:  One  per  centum  of 
the  amount  of  net  income  not  exceeding  ten  thousand  dollars; 
two  per  centum  of  the  amount  of  net  income  in  excess  of  ten 
thousand  dollars  but  not  in  excess  of  fifty  thousand  dollars ;  three 
per  centum  of  the  amount  of  net  income  in  excess  of  fifty  thou- 
sand dollars.  A  like  tax  is  hereby  imposed  and  shall  be  levied. 


Appendix  II  627 

collected  and  paid  annually,  at  the  rates  specified  in  this  section, 
upon  and  with  respect  to  the  entire  net  income  as  herein  denned, 
except  as  hereinafter  provided,  from  all  property  owned  and  from 
every  business,  trade,  profession  or  occupation  carried  on  in  this 
state  by  natural  persons  not  residents  of  the  state.  Such  tax 
shall  first  be  levied,  collected  and  paid  in  the  year  nineteen  hun- 
dred and  twenty  upon  and  with  respect  to  the  taxable  income 
for  the  calendar  year  nineteen  hundred  and  nineteen,  or  for  any 
taxable  year  ending  during  the  year  nineteen  hundred  and 
nineteen. 

§  352.  Exemption  of  certain  personal  property  from  taxation. 
The  taxes  imposed  by  this  article  are  in  addition  to  all  other 
taxes  imposed  by  law,  except  that  money  on  hand,  on  deposit  or 
at  interest,  bonds,  notes  and  choses  in  action  and  shares  of  stock 
in  corporations  other  than  banks  and  banking  associations, 
owned  by  any  individual  or  constituting  a  part  of  a  trust  or 
estate  subject  to  the  income  tax  imposed  by  this  article,  and  from 
which  any  income  is  derived,  shall  not  after  July  thirty-first, 
nineteen  hundred  and  nineteen,  be  included  in  the  valuation  of 
the  personal  property  included  in  the  assessment-rolls  of  the 
several  tax  districts,  villages;  school  districts  and  special  tax  dis- 
tricts of  the  state. 

§  353.  Ascertainment  of  gain  and  loss.  For  the  purpose  of 
ascertaining  the  gain  derived  or  loss  sustained  from  the  sale  or 
other  disposition  oi  property,  real,  personal  or  mixed,  the  basis 
shall  be  first,  in  case  of  property  acquired  before  January  first, 
nineteen  hundred  and  nineteen,  the  fair  market  price  or  value 
of  such  property,  as  of  January  first,  nineteen  hundred  and  nine- 
teen, and,  second,  in  case  of  property  acquired  on  or  after  that 
date,  the  cost  thereof;  or  the  inventory  value,  if  the  inventory 
is  made  in  accordance  with  this  article. 

§  354.  Exchange  of  property.  When  property  is  exchanged 
for  other  property,  the  property  received  in  exchange  shall  for  the 
purpose  of  determining  gain  or  loss  be  treated  as  the  equivalent 
of  cash  to  the  amount  of  its  fair  market  value,  if  any;  but  when 
in  connection  with  the  reorganization,  merger  or  consolidation  of 
a  corporation  a  taxpayer  receives,  in  place  of  stock  or  securities 
owned  by  him,  new  stock  or  securities  of  no  greater  aggregate 


628  Appendix  II 

par  or  face  value,  no  gain  or  loss  shall  be  deemed  to  occur  from 
the  exchange,  and  the  new  stock  or  securities  received  shall  be 
treated  as  taking  the  place  of  the  stock,  securities  or  property 
exchanged. 

§  355.  Gain  through  exchange,  When  in  the  case  of  any  such 
reorganization,  merger  or  consolidation  the  aggregate  par  or  face 
value  of  the  new  stock  or  securities  received  is  in  excess  of  the 
aggregate  par  or  face  value  of  the  stock  or  securities  exchanged, 
a  like  amount  in  par  or  face  value  of  the  new  stock  or  securities 
received  shall  be  treated  as  taking  the  place  of  the  stock  or 
securities  exchanged,  and  the  amount  of  the  excess  in  par  or  face 
value  shall  be  treated  as  a  gain  to  the  extent  that  the  fair  market 
value  of  the  new  stock  or  securities  is  greater  than  the  cost  of 
the  stock  or  securities  exchanged,  if  acquired  on  or  after  January 
first,  nineteen  hundred  and  nineteen,  and  it§  fair  market  price 
or  value  as  of  January  first,  nineteen  hundred  and  nineteen,  if 
acquired  before  that  date. 

§  356.  Inventory.  Whenever  in  the  opinion  of  the  comptroller 
the  use  of  inventories  is  necessary  in  order  clearly  to  determine 
the  income  of  any  taxpayer,  inventories  shall  be  taken  by  such 
taxpayer  upon  such  basis  as  the  comptroller  may  prescribe,  con- 
forming as  nearly  as  may  be  to  the  best  accounting  practice  in 
the  trade  or  business  and  most  clearly  reflecting  the  income,  and 
conforming  so  far  as  may  be  to  the  forms  and  methods  prescribed 
by  the  United  States  commissioner  of  internal  revenue  under  the 
act  of  congress  known  as  the  revenue  act  of  nineteen  hundred 
and  eighteen. 

§  357.  Net  income  denned.  The  term  "net  income"  means 
the  gross  income  of  a  taxpayer  less  the  deductions  allowed  by  this 
article. 

§  358.  Computation  of  net  income.  1.  The  net  "income  shall 
be  computed  upon  the  basis  of  the  taxpayer's  ammal  accounting 
period  (fiscal  year  or  calendar  year  as  the  case  may  be)  in  accord- 
ance with  the  method  of  accounting  regularly  employed  in  keep- 
ing the  books  of  such  taxpayer ;  but  if  no  such  method  of  account- 
ing has  been  so  employed,  or  if  the  method  employed  does  not 
clearly  reflect  the  income,  the  computation  shall  be  made  upon 
such  basis  and  in  such  manner  ns  in  the  opinion  of  the  comptroller 


Appendix  11  62(9 

does  clearly  reflect  the  income.  If  the  taxpayer's  annual  account- 
ing period  is  other  than  a  fiscal  year  as  defined  in  this  article, 
or  if  the  taxpayer  has  no  annual  accounting  period  or  does  not 
keep  books,  the  net  income  shall  be  computed  on  the  basis  of  the 
calendar  year. 

2.  If  a  taxpayer  changes  his  accounting  period  from  fiscal  year 
to  calendar  year,  from  calendar  year  to  fiscal  year,  or  from  one 
fiscal  year  to  another,  the  net  income  shall,  with  the  approval  of 
the  comptroller,  be  computed  on  the  basis  of  such  new  accounting 
period,  subject  to  the  provisions  of  section  three  hundred  and 
seventy. 

§  359.   Gross  income  defined.      The  term  "  gross  income": 

1.  Includes  gains,  profits  and  income  derived  from  salaries, 
wages  or  compensation  for  personal   service,   of  whatever  kind 
and  in  whatever  form  paid,  or  from  profession,  vocations,  trades, 
businesses,  commerce,  or  sales,  or  dealings  in  property,  whether 
real   or   personal,   growing  out   of  the   ownership  or  use  of  or 
interest   in   such  property;    also  from   interest,   rent,   dividends, 
securities,  or  the  transaction  of  any  business  carried  on  for  gain 
or  profit,  or  gains  or  profits  and  income  derived  from  any  source 
whatever.      The  amount  of  all  such  items  shall  be  included  in 
the  gross  income  for  the  taxable  year  in  which  received  by  the 
taxpayer,  unless,  under  the  methods  of  accounting  permitted  in 
this  article,  any  such  amounts  are  to  be  properly  accounted  for 
as  of  a  different  period;  but 

2.  Does  not  include  the  following  items  which  shall  be  exempt 
from  taxation  under  this  article: 

a.  The  proceeds  of  life  insurance  policies  and  contracts  paid 
upon  the  death  of  the  insured  to  individual  beneficiaries  or  to 
the  estate  of  the  insured. 

b.  The  amount  received  by  the  insured  as  a  return  of  premium 
or  premiums  paid  by  him  under  life  insurance,  endowment  or 
annuity  contracts,  either  during  the  term  or  at  the  maturity  of 
the  term  mentioned   in  the  contract  or  upon   surrender  of  the 
contract. 

c.  The  value  of  property  acquired  by  gift,  bequest,  devise  or 
descent  (but  the  income  from  such  property  shall  be  included  in 
gross  income). 


630  Appendix  II 

~~-^         •'•«*«  <* 

d.  Interest  upon  the  obligations  of  the  United  States  or  its 
possessions;    or    securities    issued    under    the    provisions    of    the 
federal  farm  loan  act  of  July  seventeen,  nineteen  hundred  and 
sixteen;  or  bonds  issued  by  the  war  finance  corporation;  or  the 
obligations  of  the  state  of  New  York  or  of  any  municipal  corpo- 
ration or  political  subdivision  thereof;  or  investments  upon  which 
the  tax  provided  for  in  section  three  hundred  and  thirty-one  of 
this  chapter  has  heretofore  been  paid  since  June  first,  nineteen 
hundred  and  seventeen,  during  the  period  of  years  for  which  such 
tax  shall  have  been  paid. 

e.  Any  amount  received  through  accident  or  health  insurance  or 
under  workmen's  compensation  acts,  as  compensation  for  personal 
injuries  or  sickness,  plus  the  amount  of  any  damages  received 
whether  by  suit  or  agreement  on  account  of  such  injuries  or  sick- 
ness, or  through  the  war  risk  insurance  act  or  any  law  for  the 
benefit  or  relief  of  injured  or  disabled  members  of  the  military  or 
naval  forces  of  the  United  States. 

f.  Salaries,  wages  and  other  compensation  received  from  the 
United  States  of  officials  or  employees  thereof,  including  persons 
in  the  military  or  naval  forces  of  the  United  States. 

g.  Income  received  by  any  officer  of  a  religious  denomination 
or  by  any  institution,  or  trust,  for  moral  or  mental  improvement, 
religious,  bible,  tract,  charitable,  benevolent,  fraternal,  mission- 
ary, hospital,  infirmary,  educational,  scientific,  literary,  library, 
patriotic,  historical  or  cemetery  purposes,  or  for  the  enforcement 
of  laws  relating  to  children  or  animals,  or  for  two  or  more  of  such 
purposes,  if  such  income  be  used  exclusively  for  carrying  out  one 
or  more  of  such  purposes;  but  nothing  herein  shall  be  construed 
to  exempt  the  fees,  stipends,  personal  earnings  or  other  private 
income  of  such  officer  or  trustee. 

3.  In  the  case  of  taxpayers  other  than  residents,  gross  income 
includes  only  the  gross  income  from  sources  within  the  state,  but 
shall  not  include  annuities,  interest  on  bank  deposits,  interest  on 
bonds,  notes  or  other  interest-bearing  obligations  or  dividends 
from  corporations,  except  to  the  extent  to  which  the  same  shall  be 
a  part  of  income  from  any  business,  trade,  profession  or  occupation 
carried  on  in  this  state  subject  to  taxation  under  this  article. 


Appendix  II  631 

§   360.  Deductions.     In  computing  net  income  there  shall  be 
allowed  as  deductions: 

1.  All  the  ordinary  and  necessary  expenses  paid  or  incurred 
during  the  taxable  year  in  carrying  on  any  trade  or  business, 
including  a  reasonable  allowance  for  salaries  or  other  compensa- 
tion for  personal  services  actually  rendered,  and  including  rentals 
or  other  payments  required  to  be  made  as  a  condition  to  the  con- 
tinued use  or  possession,  for  purposes  of  the  trade  or  business,  of 
property  to  which  the  taxpayer  has  not  taken  or  is  not  taking  title 
or  in  which  he  has  no  equity. 

2.  In  the  case  of  a  resident  of  the  state  such  a  proportion  of 
the  total  interest  paid  or  accrued  during  the  taxable  year  on  in- 
debtedness, as  the  net  income  of  the  taxpayer  taxable  under  this 
article  bears  to  his  total  income  from  all  sources;  or  in  case  of 
an  individual  not  a  resident  of  the  state,  the  same  proportion  of 
interest  paid  or  accrued  within  the  taxable  year  on  indebtedness 
which  the  amount  of  such  gross  income,  as  herein  defined,  bears 
to  the  gross  amount  of  his  income  from  all  sources  within  and 
without  the  state. 

3.  Taxes  other  than  income  taxes  paid  or  accrued  within  the 
taxable  year  imposed,  first,  by  the  authority  of  the  United  States, 
or  of  any  of  its  possessions,  or,  second,  by  the  authority  of  any 
state,  or  territory,  or  any  county,  school  district,  municipality, 
or  other  taxing  subdivision  of  any  state  or  territory,  not  includ- 
ing those   assessed   against  local  benefits   of   a  kind   tending  to 
increase  the  value  of  the   property   assessed,   or,   third,   by   the 
authority  of  any  foreign  government. 

4.  Losses  sustained  during  the  taxable  year  and  not  compen- 
sated  for   by   insurance   or   otherwise,    if   incurred    in   trade   or 
business. 

5.  Losses  sustained  during  the  taxable  year  and  not  compen- 
sated for  by  insurance  or  otherwise,  if  incurred  in  any  transaction 
entered  into  for  profit,  though  not  connected  with  the  trade  or 
business;  but  in  the  case  of  a  taxpayer  other  than  a  resident  of  the 
state,  only  as  to  such  transactions  within  the  state. 

6.  Losses  sustained  during  the  taxable  year  of  property  not 
connected  with  the  trade  or  business  (but,  in  the  case  of  a  tax- 
payer other  than  a  resident,  only  of  property  within  the  state)  if 


0'32  Appendix  II 

arising  from  fires,  storms,  shipwrecks,  or  other  casualty  or  from 
theft,  and  not  compensated  for  by  insurance  or  otherwise. 

7.  Debts  ascertained  to  be  worthless  and  charged  off  within  the 
taxable  year. 

8.  A  reasonable  allowance  for  the  exhaustion,  wear  and  tear  of 
property  used  in  the  trade  or  business,  including  a  reasonable 
allowance  for  obsolescence. 

9.  In  the  case  of  mines,  oil  and  gas  wells,  other  natural  de- 
posits and  timber,  a  reasonable  allowance  for  depletion  and  for 
depreciation  of  improvements,  according  to  the  peculiar  conditions 
in  each  case,  based  upon  cost  including  cost  of  development  not 
otherwise  deducted;  provided,  that  in  the  case  of  such  properties 
acquired  prior  to  January  first,  nineteen  hundred  and  nineteen, 
the  fair  market  value  of  the  property  (or  the  taxpayer's  interest 
therein)   on  that  date  shall  be  taken  in  lieu  of  cost  up  to  that 
date;  provided,  further,  that  in  the  case  of  mines,  oil  and  gas 
wells,  discovered  by  the  taxpayer  on  or  after  January  first,  nine- 
teen hundred  and  nineteen,  and  not  acquired  as  the  result  of  a 
purchase  of  a  proven  tract  or  lease,  where  the  fair  market  value 
of  the  property  is  materially  disproportionate  to  the  cost,  the 
depletion  allowance  shall  be  based  upon  the  fair  market  value  of 
the  property  at  the  date  of  the  discovery  or  within  thirty  days 
thereafter;  such  reasonable  allowance  in  all  the  above  cases  to  be 
made  under  rules  and  regulations  to  be  prescribed  by  the  comp- 
troller.    In  the  case  of  leases  the  deductions  allowed  by  this  para- 
graph shall  be  equitably  apportioned  between  the  lessor  and  lessee. 

10.  Contributions  or  gifts  made  within   the  taxable  year  to 
corporations  incorporated  by,  or  associations  organized  under,  the 
laws  of  this  state  and  operated  exclusively  for  religious,   char- 
itable, scientific  or  educational  purposes,  or  for  the  prevention 
of  cruelty  to  children  or  animals,  no  part  of  the  net  earnings  of 
which  inures  to  the  benefit  of  any  private  stockholder  or  indi- 
vidual, or  to  the  special  fund  for  vocational  rehabilitation  author- 
ized by  section  seven  of  the  act  of  congress  known  as  the  voca- 
tional rehabilitation  act,  to  an  amount  not  in  excess  of  fifteen 
per  centum  of  the  taxpayer's  net  income  as  computed  without  the 
benefit  of  this  subdivision.      Such  contributions  or  gifts  shall  be 
allowable  as  deductions  only  if  verified  under  rules  and  regula- 


Appendix  II  633 

tions  prescribed  by  the  comptroller.  In  the  case  of  a  taxpayer 
other  than  a  resident  of  the  state  this  deduction  shall  be  allowed 
only  as  to  contributions  or  gifts  made  to  corporations  or  associa- 
tions incorporated  by  or  organized  under  the  laws  of  this  state  or 
to  the  vocational  rehabilitation  fund  above  mentioned. 

11.  In  the  case  of  a  taxpayer  other  than  a  resident  of  the  state 
the  deductions  allowed  in  this  section  shall  be  allowed  only  if, 
and  to  the  extent  that,  they  are  connected  with  income  arising 
from  sources  within  the  state;  and  the  proper  apportionment  and 
allocation  of  the  deductions  with  respect  to  sources  of  income 
within  and  without  the  state  shall  be  determined  under  rules  and 
regulations  to  be  prescribed  by  the  comptroller. 

§  361.  Items  not  deductible.  In  computing  net  income  no  de- 
duction shall  in  any  case  be  allowed  in  respect  of : 

1.  Personal,  living,  or  family  expenses ; 

2.  Any  amount  paid  out  for  new  buildings  or  for  permanent 
improvements  or  betterments  made  to  increase  the  value  of  any 
property  or  estate ; 

3.  Any  amount  expended  in  restoring  property  or  in  making 
good  the  exhaustion  thereof  for  which   ari  allowance  is  or  has 
been  made;  or 

4.  Premiums  paid  on  any  life  insurance  policy,  covering  the 
life  of  any  officer  or  employee,  or  of  any  person  financially  inter- 
ested in  any  trade  or  business  carried  on  by  the  taxpayer,  when 
the  taxpayer  is  directly  or  indirectly  a  beneficiary  under  such 
policy. 

§  362.  Exemptions.  The  following  exemptions  shall  be  allowed 
to  any  resident  taxpayer: 

1.  In  the  case  of  a  single  person,  a  personal  exemption  of  one 
thousand  dollars,  or  in  the  case  of  the  head  of  a  family  or  a  mar- 
ried person  living  with  husband  or  wife,  a  personal  exemption  of 
two  thousand  dollars.     A  husband  and  wife  living  together  shall 
receive    but    one    personal    exemption    of   two    thousand    dollars 
against  their  aggregate  net  income;  and  in  case  they  make  sep- 
arate returns,  the  personal   exemption  of  two  thousand  dollars 
may  be  taken  by  either  or  divided  between  them. 

2.  Two  hundred  dollars  for  each  person  (other  than  husband 
or  wife)   dependent  upon  and  receiving  his  chief  support  from 


634  Appendix  II 

the  taxpayer,  if  such  dependent  person  is  under  eighteen  years 
of  age  or  is  incapable  of  self-support  because  mentally  or  physi- 
cally defective. 

3.  A  taxpayer  receiving  salary,  wages,  or  other  compensation 
from  the  United  States  as  an  official  thereof,  exempt  from  taxa- 
tion under  this  article,  shall  be  entitled  to  only  so  much  of  the 
personal  exemption  provided  for  in  this  section  as  is  in  excess  of 
the  aggregate  amount  of  such  salaries,  wages,  or  other 
compensation. 

§  363.  Credit  for  taxes  in  case  of  taxpayers  other  than  resi- 
dents of  the  state.  Whenever  a  taxpayer  other  than  a  resident  of 
the  state  has  become  liable  to  income  tax  to  the  state  or  country 
where  he  resides  upon  his  net  income  for  the  taxable  year,  derived 
from  sources  within  this  state  and  subject  to  taxation  under  this 
article,  the  comptroller  shall  credit  the  amount  of  income  tax  pay- 
able by  him  under  this  article  with  such  proportion  of  the  tax  so 
payable  by  him  to  the  state  or  country  where  he  resides  as  his 
income  subject  to  taxation  under  this  article  bears  to  his  entire 
income  upon  which  the  tax  so  payable  to  such  other  state  of 
country  was  imposed;  provided  that  such  credit  shall  be  allowed 
only  if  the  laws  of  said  state  or  country  grant  a  substantially 
similar  credit  to  residents  of  this  state  subject  to  income  tax  under 
such  laws. 

§  364.  Partnerships.  Individuals  carrying  on  business  in 
partnerships  shall  be  liable  for  income  tax  only  in  their  individual 
capacity.  There  shall  be  included  in  computing  the  net  income 
of  each  partner  his  distributive  share,  whether  distributed  or  not, 
of  the  net  income  of  the  partnership  for  the  taxable  year,  or,  if 
his  net  income  for  such  taxable  year  is  computed  upon  the  basis 
of  a  period  different  from  that  upon  the  basis  of  which  the  net 
income  of  the  partnership  is  computed,  then  his  distributive  share 
of  the  net  income  of  the  partnership  for  any  accounting  period 
of  the  partnership  ending  within  the  fiscal  or  calendar  year 
upon  the  basis  of  which  the  partner's  net  income  is  computed. 
Taxpayers  who  are  members  of  partnerships  may  be  required 
by  the  comptroller  to  make  a  return  stating  the  gross  receipts 
and  net  gains  or  profits  of  the  partnership  for  any  taxable  year. 
The  net  income  of  the  partnership  shall  be  computed  in  the  same 


Appendix  II  635 

manner  and  on  the  same  basis  as  provided  in  computing  the  net 
income  of  individuals  except  that  the  deduction  provided  in, 
subdivision  ten  of  section  three  hundred  and  sixty  shall  not  be 
allowed  and  the  personal  exemptions  provided  for  in  section  three 
hundred  and  sixty-two  shall  be  allowed  only  to  the  individual 
partners. 

§  365.  Estates  and  trusts.  1.  The  tax  imposed  by  this  article 
shall  apply  to  the  income  of  estates  or  of  any  kind  of  property 
held  in  trust,  including: 

a.  Income  received  by  estates  of  deceased  persons  during  the 
period  of  administration  or  settlement  of  the  estate; 

b.  Income  accumulated  in  trust  for  the  benefit  of  unborn  or 
unascertained  persons  or  persons  with  contingent  interests ; 

c.  Income  held  for  future  distribution  under  the  terms  of  the 
will  or  trust;  and 

d.  Income    which    is    to    be    distributed    to    the    beneficiaries 
periodically,  whether  or  not  at  regular  intervals,  and  the  income 
collected  by  a  guardian  of  an  infant»to  be  held  or  distributed  as 
the  court  may  direct. 

2.  The  fiduciary  shall  be  responsible  for  making  the  return  of 
income  for  the  estate  or  trust  for  which  he  acts.  The  net  income 
of  the  estate  or  trust  shall  be  computed  in  the  same  manner  and 
on  the  same  basis  as  provided  in  this  article  for  individual  tax- 
payers, except  that  there  shall  also  be  allowed  as  a  deduction  any 
part  of  the  gross  income  which  pursuant  to  the  terms  of  the  will 
or  deed  creating  the  trust,  is  during  the  taxable  year  paid  to  or 
permanently  set  aside  for  the  United  States,  any  state,  territory, 
or  any  political  subdivision  thereof,  or  the  District  of  Columbia, 
or  any  corporation  or  association  organized  and  operated  exclu- 
sively for  religious,  charitable,  scientific  or  educational  purposes, 
or  for  the  prevention  of  cruelty  to  children  or  animals,  no  part 
of  the  net  earnings  of  which  inures  to  the  benefit  of  any  private 
stockholder  or  individual ;  and  in  cases  under  paragraph  d  of  sub- 
division one  of  this  section,  the  fiduciary  shall  include  in  the 
return  a  statement  of  each  beneficiary's  distributive  share  of  such 
net  income,  whether  or  not  distributed  before  the  close  of  the 
taxable  vear  for  which  the  return  is  made. 


636  Appendix  II 

3.  In  cases  under  paragraphs  a,  b,  and  c  of  subdivision  one, 
of  this  section,  the  tax  shall  be  imposed  upon  the  net  income  of 
the  estate  or  trust  and  shall  be  paid  by  the  fiduciary,  except  that 
in  determining  the  net  income  of  the  estate  of  any  deceased  person 
during  the  period  of  administration  or  settlement  there  may  be 
deducted  the  amount  of  any  income  properly  paid  or  credited  to 
any  legatee,  heir  or  other  beneficiary.     In  such  cases,  the  estate 
or  trust  shall  be  allowed  the  same  exemptions  as  are  allowed  to 
single  persons  under  section  three  hundred  and  sixty-two,  and  in 
such  cases  an  estate  or  trust  created  by  a  person  not  a  resident  and 
an  estate  of  a  person  not  a  resident  shall  be  subject  to  tax  only  to 
the  extent  to  which  individuals  other  than  residents  are  liable 
under  section  three  hundred  and  fifty-nine,  subdivision  three. 

4.  In  cases  under  paragraph  d  of  subdivision  one  of  this  section 
and  in  the  case  of  any  income  of  an  estate  during  the  period  of 
administration  or  settlement  permitted  by  subdivision  three  to  be 
deducted  from  ihe  net  income  upon  which  tax  is  to  be  paid  by 
the  fiduciary,  the  tax  shall  not  be  paid  by  the  fiduciary,  but  there 
shall  be  included  in  computing  the  net  income  of  each  benefit-inn' 
his  distributive  share  whether  distributed  or  not,  of  the  net  income 
of  the  estate  or  trust  for  the  taxable  year,  or,  if  his  net  income 
for  such  taxable  year  is  computed  upon  the  basis  of  a  period 
different  from  that  upon  the  basis  of  which  the  net  income  of  the 
estate  or  trust  is  computed,  then  .his  distributive  share  of  the  net 
income  of  the  estate  or  trust  for  any  accounting  period  of  such 
estate  or  trust  ending  within  the  fiscal  or  calendar  year  upon  the 
basis  of  which  such  beneficiary's  net  income  is  computed.    In  such 
cases  the  income  of  a  beneficiary  of  such  estate  or  trust  not  a  resi- 
dent shall  be  taxable  only  to  the  extent  provided  in  section  three 
hundred  and  fifty-nine,  subdivision  three,  for  individuals  other 
than  residents. 

§  366.  Information  and  payment  at  source.  1.  Every  with- 
holding agent  shall  deduct  and  withhold  two  per  centum  from  all 
salaries,  wages,  commissions,  gratuities,  emoluments,  perquisite? 
and  other  fixed  and  determinable  annual  or  periodical  compensa- 
tion of  whatever  kind  and  in  whatever  form  paid  or  received, 
earned  for  personal  services  and  taxable  under  this  article,  of 
which  he  shall  have  control,  receipt,  custody,  disposal  or  payment, 


Appendix  II  637 

if  the  amount  paid  or  received  or  to  be  paid  or  received  in  any 
taxable,  year  on  account  of  any  individual  equals  or  exceeds  one 
thousand  dollars,  unless  there  shall  be  filed  with  the  withholding 
agent,  before  the  time  when  he  is  required  to  make  return  and  pay- 
ment thereof,  a  certificate  in  such  form  as  shall  be  prescribed  by 
the  comptroller  to  the  effect  that  the  person  entitled  to  such  salary, 
wage,  commission,  gratuity,  emolument,  perquisite  or  other  com- 
pensation is  a  resident  and  setting  forth  his  residence  address 
within  the  state. 

2.  Every  withholding  agent  shall  make  return  to  the  comp- 
troller  of   complete   information   concerning  the   amount   of   all 
interest,    rent,    salaries,   wages,    premiums,    annuities,    compensa- 
tions, remunerations,  emoluments  or  other  fixed  or  determinate 
gains,    profits    and   income,    except   interest   coupons   payable   to 
bearer,  of  any  taxpayer  taxable  under  this  article  of  one  thousand 
dollars  or  more  in  any  taxable  year  under  such  regulations  and 
in  such  form  and  manner  and  to  such  extent  as  may  be  prescribed 
by  the  comptroller. 

3.  Every  withholding  agent  required  to  deduct  and  withhold 
any  tax  under  subdivision  one  of  this  section  shall  make  return 
thereof  on  or  before  the  fifteenth  day  of  March  in  each  year  and 
shall  at  the  same  time  pay  the  tax  to  the  comptroller.     Every 
such  individual  corporation  or  partnership  is  hereby  made  liable 
for  such  tax  and  is  hereby  indemnified  against  the  claims  and 
demands  of  any  individual,  corporation  or  partnership  for  the 
amount  of  any  payments  made  in  accordance  with  the  provisions 
of  this  section. 

4-.  Income  upon  which  any  tax  is  required  to  be  withheld  at 
the  source  under  this  section  shall  be  included  in  the  return  of  the 
recipient  of  such  income,  but  any  amount  of  tax  so  withheld  shall 
be  credited  against  the  amount  of  income  tax  as  computed  in  such 
return. 

5.  If  any  tax  required  under  this  section  to  be  deducted  and 
withheld  is  paid  by  the  recipient  of  the  income,  it  shall  not  be 
recollected  from  the  withholding  agent;  nor  in  cases  in  wrhich 
the  tax  is  so  paid  shall  any  penalty  be  imposed  upon  or  collected 
from  the  recipient  of  the  income  or  the  withholding  agent  for 


638  Appendix  II 

failure  to  return  or  pay  the  same,  unless  such  failure  was  fraudu- 
lent and  for  the  purpose  of  evading  payment. 

§  367.  Taxpayers'  returns.  Every  taxpayer  having  a  net  in- 
come for  the  taxable  year  of  one  thousand  dollars  or  over  if 
single  or  if  married  and  not  living  with  husband  or  wife,  or  of 
two  thousand  dollars  or  over  if  married  and  living  with  husband 
or  wife,  shall  make  under  oath  a  return  stating  specifically  the 
items  of  his  gross  income  and  the  deductions  and  credits  allowed 
by  this  article.  If  a  husband  and  wife  living  together  have  an 
aggregate  net  income  of  two  thousand  dollars  or  over,  each  shall 
make  such  a  return  unless  the  income  of  each  is  included  in  a 
single  joint  return.  If  the  taxpayer  is  unable  to  make  his  own 
return  the  return  shall  be  made  by  a  duly  authorized  agent  or 
by  the  guardian  or  other  person  charged  with  the  care  of  the 
person  or  property  of  such  taxpayer.  A  taxpayer  other  than  a 
resident  shall  not  be  entitled  to  the  deductions  authorized  by 
section  three  hundred  and  sixty  unless  he  shall  make  under  oath 
a  complete  return  of  his  gross  income  both  within  and  without 
the  state. 

§  368.  Partnership  returns.  Every  partnership  shall  make  a 
return  for  each  taxable  year,  stating  specifically  the  items  of  its 
gross  income  and  the  deductions  allowed  by  this  article,  and  shall 
include  in  the  return  the  names  and  addresses  of  the  individuals 
who  would  be  entitled  to  share  in  the  net  income  if  distributed 
and  the  amount  of  the  distributive  share  of  each  individual.  The 
return  shall  be  sworn  to  by  any  one  of  the  partners. 

§  369.  Fiduciary  returns.  Every  fiduciary  (except  receivers 
appointed  by  authority  of  law  in  possession  of  part  only  of  the 
property  of  a  taxpayer)  shall  make  under  oath  a  return  for  the 
taxpayer  for  whom  he  acts,  first,  if  the  net  income  of  such  tax- 
payer is  one  thousand  dollars  or  over  if  single,  or  if  married 
and  not  living  with  husband  or  wife,  or  two  thousand  dollars  or 
over  if  Harried  and  living  with  husband  or  wife,  or  second,  if 
the  net  income  of  such  taxpayer,  if  an  estate  or  trust,  is  one 
thousand  dollars  or  over  or  if  any  beneficiary  is  a  taxpayer  other 
than  a  resident  of  the  state,  which  return  shall  state  specifically 
the  items  of  the  gross  income  and  the  deduction^,  exemptions 
and  credits  allowed  by  this  article.  Under  such  regulations  as 


Appendix  II  63|9 

the  comptroller  may  prescribe,  a  return  made  by  one  of  two  or 
more  joint  fiduciaries  and  filed  in  the  office  of  the  comptroller 
or  collector  in  the  district  where  such  fiduciary  resides  shall  be 
a  sufficient  compliance  with  the  above  requirement.  The  fidu- 
ciary shall  make  oath  that  he  has  sufficient  knowledge  of  the 
affairs  of  such  individual,  estate  or  trust  to  enable  him  to  make 
the  return,  and  that  the  same  is,  to  the  best  of  his  knowledge 
and  belief,  true  and  correct. 

Fiduciaries  required  to  make  returns  under  this  article  shall  be 
subject  to  all  the  provisions  of  this  article  which  apply  to 
taxpayers. 

§  370.  Returns  when  accounting  period  changed.  If  a  taxpayer, 
with  the  approval  of  the  comptroller,  changes  the  basis  of  com- 
puting net  income  from  fiscal  year  to  calendar  year,  a  separate 
return  shall  be  made  for  the  period  between  the  close  of  the  last 
fiscal  year  for  which  return  was  made  and  the  following  December 
thirty-first.  If  the  change  is  made  from  calendar  year  to  fiscal 
year,  a  separate  return  shall  be  made  for  the  period  between  the 
close  of  the  last  calendar  year  for  which  return  was  made  and  the 
date  designated  as  the  close  of  the  last  fiscal  year.  If  the  change 
is  from  one  fiscal  year  to  another  fiscal  year,  a  separate  return 
shall  be  made  for  the  period  between  the  close  of  the  former  fiscal 
year  and  the  date  designated  as  the  close  of  the  new  fiscal  year. 
If  a  taxpayer  making  his  first  return  for  income  tax  keeps  his 
accounts  on  the  basis  of  a  fiscal  year,  he  shall  make  a  separate 
return  for  the  period  between  the  beginning  of  a  calendar  year 
in  which  such  fiscal  year  ends  and  the  end  of  such  fiscal  year. 

In  all  of  the  above  cases  the  net  income  shall  be  computed  on 
the  basis  of  such  period  for  which  separate  return  is  made,  and 
the  tax  shall  be  paid  thereon  at  the  rate  for  the  calendar  year 
in  which  such  period  is  included ;  and  the  exemptions  allowed  in 
this  article  shall  be  reduced  respectively  to  amounts  which  bear 
the  same  ratio  to  the  full  exemptions  provided  for  as  the  number 
of  months  in  such  period  bears  to  twelve  months. 

§  371.  Time  and  place  of  filing  returns.  Returns  shall  be 
made  to  the  comptroller  on  or  1:  afore  the  fifteenth  day  of  March 
in  each  year  of  the  taxpayer's  net  income  for  his  last  preceding 
taxable  year.  The  comptroller  may  grant  a  reasonable  extension 


Appendix  II 

-X' 

01  time  for  filing  returns  whenever  in  its  judgment  good  cause 
exists  and  shall  keep  a  record  of  every  such  extension  and  the 
reason  therefor.  Except  in  the  case  of  taxpayers  who  are  abroad, 
no  such  extension  shall  be  granted  for  more  than  six  months. 
Such  returns  shall,  so  far  as  may  be,  set  forth  the  same  or  similar 
items  called  for  in  the  blank  forms  of  return  prescribed  by  the 
United  States  commissioner  of  internal  revenue  for  the  enforce- 
ment of  the  act  of  congress  known  as  the  revenue  act  of  nineteen 
hundred  and  eighteen,  together  with  such  other  facts  as  the  comp- 
troller may  deem  necessary  for  the  proper  enforcement  of  this 
article.  There  shall  be  annexed  to  such  return  the  affidavit  or 
affirmation  of  the  person  making  the  return,  to  the  effect  that  the 
statements  contained  therein  are  true.  Blank  forms  of  return 
shall  be  furnished  by  the  comptroller  upon  application,  but 
failure  to  secure  the  form  shall  not  relieve  any  taxpayer  from 
the  obligation  of  making  any  return  herein  required. 

§  372.  Administration  of  income  tax  law.  The  comptroller 
shall  administer  and  enforce  the  tax  herein  imposed  for  which 
purpose  he  may  divide  the  state  into  districts  in  each  of  which  a 
branch  office  of  the  comptroller  may  be  maintained;  provided 
that  in  no  cases  shall  a  county  be  divided  in  forming  a  district. 

§  373.  Powers  of  comptroller.  If  in  the  opinion  of  the  comp- 
troller any  return  of  a  taxpayer  is  in  any  essential  respect  incor- 
rect he  shall  have  power  to  revise  such  return,  or  if  any  tax- 
payer fails  to  make  return  as  herein  required,  the  comptroller 
is  authorized  to  make  an  estimate  of  the  taxable  income  of  such 
taxpayer  from  any  information  in  his  possession,  and  to  audit 
and  state  an  account  according  to  such  revised  return  or  the  esti- 
mate so  made  by  him  for  the  taxes,  penalties  and  interest  due  the 
state  from  such  taxpayer.  The  comptroller  shall  also  have  power 
to  examine  or  cause  to  have  examined,  in  case  of  failure  to  report 
the  books  and  records  of  any  such  taxpayer,  and  may  take  testi- 
mony and  require  proof  material  for  his  information. 

§  374.  Revision  and  readjustment  of  accounts  by  comptroller. 
If-  an  application  for  revision  be  filed  with  the  comptroller  bv  a 
taxpayer  within  one  year  from  the  time  of  the  filing  of  the  return, 
or  if  the  tax  of  such  taxpayer  shall  have  been  recomputed,  then 
from  the  time  of  such  recomputation,  the  comptroller  shall  grant 


Appendix  II  641 

a  hearing  thereon  and  if  it  shall  be  made  to  appear,  upon  any  such 
hearing  by  evidence  submitted  to  him  or  otherwise,  that  any  such 
computation  includes  taxes  or  other  charges  which  could  not  have 
been  lawfully  demanded,  or  that  payment  has  been  illegally  made 
or  exacted  of  any  such  amount  so  computed,  the  comptroller  shall 
resettle  the  same  according  to  law  and  the  facts,  and  adjust  the 
compulation  of  taxes  accordingly,  and  shall  send  notice  of  his 
determination  thereon  to  the  taxpayer. 

§  375.  Review  of  determination  of  comptroller  by  certiorari 
ana  regulations  as  to  writ.  The  determination  of  the  comptroller 
upon  any  application  made  to  him  by  any  taxpayer  for  revision 
and  resettlement  of  any  computation  of  tax,  as  prescribed  by  this 
article,  may  be  reviewed  in  the  manner  prescribed  by  and  subject 
to  the  provisions  of  section  one  hundred  and  ninety-nine  of  this 
chapter.  No  certiorari  to  review  any  statement  of  a  computation 
or  any  determination  by  the  comptroller  under  this  article  shall 
be  granted  unless  notice  of  application  therefor  is  made  within 
thirty  days  after  the  service  of  the  notice  of  such  determination. 
Eight  days'  notice  shall  be  given  to  the  comptroller  of  the  applica- 
tion for  such  writ.  Before  making  the  application  an  undertaking 
must  be  filed  with  him,  in  such  amount  and  with  such  sureties  as 
a  justice  of  the  supreme  court  shall  approve,  to  the  effect  that  if 
such  writ  is  dismissed  or  the  determination  of  the  comptroller 
affirmed,  the  applicant  for  the  writ  will  pay  all  costs  and  charges 
which  may  accrue  against  him  in  the  prosecution  of  the  writ, 
including  costs  of  all  appeals. 

§  376.  Penalties.  1.  Any  person  required  by  this  article  to 
make,  render,  sign  or  verify  any  return,  who  fails  to  make, 
render,  sign  or  verify  such  return  within  the  time  required  by 
or  under  a  provision  of  law,  or  who  makes  any  false  or  fraudu- 
lent return  or  statement,  with  intent  to  evade  any  tax  imposed 
by  this  article,  shall  be  guilty  of  a  misdemeanor  and  shall,  upon 
conviction,  be  fined  not  to  exceed  one  thousand  dollars,  or  be 
imprisoned  not  to  exceed  one  year,  or  both,  at  the  discretion  of 
the  court. 

2.  Tf  any  such  person  shall  fail  or  refuse  to  make  a  return 
of  income  at  the  time  or  times  hereinbefore  specified,  but  shall 
voluntarily  make  a  correct  return  of  income  within  sixty  days 
21 


Appendix  II 

thereafter,  there  shall  be  added  to  his  tax  five  per  centum  of  the 
amount  otherwise  due,  but  such  additional  amount  shall  in  no 
case  be  less  than  two  dollars. 

3.  If  any  person  liable  to  taxation  under  this  article  fails  to 
make  a  return  as  herein  required,  the  amount  of  income  of  such 
person  discovered  to  be  taxable  shall  be  subject  to  twice  the 
ordinary  rate  of  taxation.  If  any  person  liable  to  taxation  under 
this  article  makes  any  false  or  fraudulent  return  or  statement, 
with  intent  to  evade  any  tax  imposed  by  this  article,  and  an 
additional  amount  is  discovered  to  be  taxable,  such  additional 
amount  shall  be  subject  to  twice  the  ordinary  rate  of  taxation. 
Such  tax  shall  be  collected  at  such  time  and  in  such  manner  as 
may  be  designated  by  the  comptroller.  This  penalty  shall  be 
additional  to  all  other  penalties  in  this  or  any  other  section 
provided. 

§  377.  When  payable,  1.  Each  taxpayer  shall,  at  the  time  of 
filing  his  return,  pay  to  the  comptroller  the  amount  of  tax  pay- 
able hereunder  as  the  same  shall  appear  from  the  face  of  the 
return.  If  the  time  for  filing  the  return  shall  be  extended,  he 
shall  pay  in  addition  interest  thereon  at  the  rate  of  six  per  centum 
per  annum  from  the  time  when  the  return  was  originally  required 
to  be  filed  to  the  time  of  payment. 

2.  As  soon  as  practicable  after  the  return  is  filed,  the  comp- 
troller shall  examine  it  and  compute  the  tax. 

3.  If  the  amount  of  tax  as  computed  shall  be  greater  than  the 
amount  theretofore  paid,  the  excess  shall  be  paid  by  the  taxpayer 
to  the  comptroller  within  thirty  days  after  the  amount  of  the  tax 
as  computed  shall  be  mailed  by  the  comptroller. 

4.  If  the  amount  of  tax  as  computed  shall  be  less  than  the 
amount  theretofore  paid,   the   excess   shall   be   refunded   by   the 
comptroller  out  of  the  proceeds  of  the  tax  retained  by  him  as 
provided  in  this  article. 

§  378.  Notice  of  assessment.  Notice  of  tax  assessment  shall 
be  sent  by  mail  to  the  post  office  address  given  in  the  report,  and 
the  record  that  such  notice  has  been  sent  shall  be  presumptive 
evidence  of  the  giving  of  the  notice  and  such  record  shall  be  pre- 
served by  the  comptroller. 


Appendix  II  643 

§  379.  Collection  of  taxes;  penalties  and  interest.  1.  The  comp- 
troller is  authorized  at  his  discretion  to  designate  agents  for  the 
purpose  of  collecting  income  taxes  and  shall  require  from  them 
reasonable  bond. 

2.  If  the  tax  imposed  by  this  article  or  any  part  of  such  tax 
be  not  paid  at  the  time  when  required  to  be  paid  under  the  pro- 
visions of  this  article  or  in  the  case  of  additional  taxes,  at  the 
time  designated  by  the  comptroller,  the  taxpayer  liable  to  pay 
such  tax  shall  pay  to  the  comptroller,  in  addition  to  the  amount 
of  such  tax,  or  part  thereof,  five  per  centum  of  said  amount,  plus 
one  per  centum  for  each  month,  or  fraction  of  a  month,  the  tax, 
or  part  thereof,  remains  unpaid. 

§  380.  Warrant  for  the  collection  of  taxes.  If  any  tax  imposed 
by  this  article  or  any  portion  of  such  tax  be  not  paid  within 
sixty  days  after  the  same  becomes  due,  the  comptroller  shall  issue 
a  warrant  under  his  hand  and  official  seal  directed  to  the  sheriff 
of  any  county  of  the  state  commanding  him  to  levy  upon  and  sell 
the  real  and  personal  property  of  the  person  owning  the  same, 
found  within  his  county,  for  the  payment  of  the  amount  thereof, 
with  the  added  penalties,  interest  and  the  cost  of  executing  the 
warrant,  and  to  return  such  warrant  to  the  comptroller  and  pay 
to  him  the  money  collected  by  virtue  thereof  by  a  time  to  be 
therein  specified,  not  less  than  sixty  days  from  the  date  of  the 
warrant.  The  sheriff  shall  within  five  days  after  the  receipt  of 
the  warrant,  file  with  the  clerk  of  his  county  a  copy  thereof,  and 
thereupon  the  clerk  shall  enter  in  the  judgment  docket,  in  the 
column  for  judgment  debtors,  the  name  of  the  taxpayer  men- 
tioned in  the  warrant,  and  in  appropriate  columns  the  amount 
of  the  tax  or  portion  thereof  and  penalties  for  which  the  war- 
rant is  issued  and  the  date  when  such  copy  is  filed,  and  thereupon 
the  amount  of  such  warrant  so  docketed  shall  become  a  lien  upon 
the  title  to  and  interest  in  real  property  or  chattels  real  of  the 
person  against  whom  it  is  issu-ed  in  the  same  manner  as  a  judgment 
duly  docketed  in  the  office  of  such  clerk.  The  said  sheriff  shall 
thereupon  proceed  upon  the  same  in  all  respects,  with  like  effect, 
and  in  the  same  manner  .prescribed  by  law  in  respect  to  execu- 
tions issued  against  property  upon  judgments  of  a  court  of  record, 
and  shall  be  entitled  to  the  same  fees  for  his  services  in  executing 
the  warrant,  to  be  collected  in  the  same  manner.  In  the  <lis- 


644  Appendix  II 

cretion  of  the  comptroller  a  warrant  of  like  terms,  force  and 
effect  may  be  issued  and  directed  to  any  agent  authorized  to  col- 
lect income  taxes,  and  in  the  execution  thereof  such  agent  shall 
have  all  the  powers  conferred  by  law  upon  sheriffs,  but  shall  be 
entitled  to  no  fee  or  compensation  in  excess  of  actual  expenses 
paid  in  the  performance  of  such  duty.  If  a.  warrant  be  returned 
not  satisfied  in  full,  the  comptroller  shall  have  the  same  remedies 
to  enforce  the  claim  for  taxes  against  the  taxpayer  as  if  the  people 
of  the  state  had  recovered  judgment  against  the  taxpayer  for 
the  amount  of  the  tax. 

§  381.  Action  for  recovery  of  taxes.  Action  may  be  brought 
at  any  time  by  the  attorney-general  of  the  state  at  the  instance 
of  the  comptroller,  in  the  name  of  the  state  to  recover  the  amount 
of  any  taxes,  penalties  and  interest  due  under  this  article. 

§  382.  Distribution  of  the  income  tax.  Of  the  revenue  collected 
under  this  article  the  comptroller  shall  retain  in  his  hands  suffi- 
cient to  provide  at  all  times  a  fund  in  his  hands  in  the  sum  of 
two  hundred  and  fifty  thousand  dollars  out  of  which  he  shall 
pay  any  refunds  to  which  taxpayers  shall  be  entitled  under  the 
provisions  of  this  article.  Of  the  remainder,  fifty  per  centum 
shall  be  paid  into  the  state  treasury  to  the  credit  of  the  general 
fund.  The  remaining  fifty  per  centum  thereof  shall,  not  later 
than  the  first  day  of  July,  and  in  case  of  moneys  subsequently 
collected  at  least  quarterly  thereafter,  be  distributed  and  paid  to 
the  treasurers  of  the  several  counties  of  the  state,  in  the  pro- 
portion that  the  assessed  valuation  of  the  real  property  of  each 
county  bears  to  the  aggregate  assessed  valuation  of  the  real  prop- 
erty of  the  state.  As  to  any  county  included  in  the  city  of  K"e\v 
York  such  payment  shall  be  made  to  the  receiver  of  taxes  in 
such  city  and  be  paid  into  the  general  fund  for  the  reduction 
of  taxation  of  the  city  of  New  York.  The  county  treasurer 
shall  apportion  the  amount  so  received  among  the  several  towns 
and  cities  within  the  county  in  proportion  that  the  assessed  valua- 
tion of  the  real  property  of  each  town  or  city  bears  to  the  aggre- 
gate assessed  valuation  of  the  real  property  of  the  county,  and 
shall  credit  the  amount  apportioned  'to  each  town  against  the 
county  tax  payable  by  it,  and  shall  pay  the  amount  apportioned 
to  each  city  to  the  chief  fiscal  officer  of  the  city  to  be  paid  into  the 


Appendix  II  645 

general-  fund  for  city  purposes.  If  the  amount  of  the  credit  to  a 
town  exceeds  the  county  tax  from  such  town,  the  excess  shall  be 
paid  to  the  supervisor  of  the  town  and  be  by  him  credited  to  gen- 
eral town  purposes. 

§  383.  Comptroller  to  make  regulations  and  to  collect  facts. 
The  comptroller  is  hereby  authorized  to  make  such  rules  and 
regulations,  and  to  require  such  facts  and  information  to  be 
reported,  as  it  may  deem  necessary  to  enforce  the  provisions  of 
this  article. 

§  384.  Secrecy  required  of  official;  penalty  for  violation. 
1.  Except  in  accordance  with  proper  judicial  order  or  as  other- 
wise provided  by  law,  it  shall  be  unlawful  for  the  comptroller,  any 
agent,  clerk,  or  other  officer  or  employee  to  divulge  or  make  known 
in  any  manner  the  amount  of  income  or  any  particulars  set  forth 
or  disclosed  in  any  report  or  return  required  under  this  article. 
Nothing  herein  shall  be  construed  to  prohibit  the  publication  of 
statistics  so  classified  as  to  prevent  the  identification  of  particular 
reports  or  returns  and  the  items  thereof,  or  the  inspection  by 
the  attorney-general  or  other  legal  representatives  of  the  state 
of  the  report  or  return  of  any  taxpayer  who  shall  bring  action  to 
set  aside  or  review  the  tax  based  thereon,  or  against  whom  an 
action  or  proceeding  has  been  instituted  in  accordance  with  the 
provisions  of  sections  three  hundred  and  eighty  and  three  hun- 
dred and  eighty-one  of  this  chapter.  Reports  and  returns  shall 
be  preserved  for  three  years  and  thereafter  until  the  comptroller 
orders  them  to  be  destroyed. 

2.  Any  offense  against  subdivision  one  of  this  section  shall 
be  punished  by  a  fine  not  exceeding  one  thousand  dollars  or  by 
imprisonment  not  exceeding  one  year,  or  both,  at  the  discretion 
of  the  court,  and  if  the  offender  be  an  officer  or  employee  of  the 
state  he  shall  be  dismissed  from  office  and  be  incapable  of 
holding  any  public  office  in  this  state  for  a  period  of  five  years 
thereafter. 

§  385.  Contract  to  assume  income  tax  illegal.  It  shall  be  unlaw- 
ful for  any  person  to  agree  or  contract  directly  or  indirectly  to 
pay  or  assume  or  bear  the  burden  of  any  tax  payable  by  any 
taxpayer  under  the  provisions  of  this  article.  An-y  such  contract 
or  agreement  shall  be  null  and  void  and  shall  not  be  enforced  or 
given  effect  by  any  court. 


INDEX 


Abatement  of  taxes §  374,  573 

affidavit    573 

authority  therefor    572 

burden  of  proof 573 

claim  for    573 

does  not  operate  as  suspension  of  collection 573 

Absence 

cause  for  securing  extension  of  time  for  filing  return 543 

of  wife  or  husband,  effect  on  joint  exemption 207 

return  by  agent  when  taxpayers  are  absent 522 

Accident  insurance 

deduction  of  premiums 121 

premiums  paid  by  employer  as  taxable  income  to  employee 25 

taxability  of  amount  received §  359  (2,  e),  72 

Accounting  methods 

change    in    13 

application  for    13 

consent  of  Commissioner  of  Internal '  Revenue 13 

return   to    conform    to 14 

computation  of  net  income §  358  (1),  13,  14 

fiduciary   246 

how  to  change 13,  528 

individuals     •. 528 

partnerships     230 

period    526 

application  for  change  in 528 

change  in §  310,  528 

consent  of  Commissioner  of  Internal  Revenue 528 

partnerships    230 

returns  to  conform  to §  358  (2),  529 

returns  to  conform  to §  358,  14,  526,  529 

Accounting  records  to  be  maintained 14 

Accrual  basis  in  determining  net  income 44,  123 

change  from  cash  to  accrual  and  vice  versa 13 

Action  for  recovery  of  taxes §  381 

Actors'  costumes,  depreciation 172 

Additional  assessment  of  income  tax §  374,  573 

Additions  and  betterments,  made  by  tenant .- 42 

Administration  of  estates 

deduction  of  expenses 125,  254 

period   of    253 

returns  for  period  of 246 

[ References  in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 

[647] 


648  Index 

Administrative  provisions 

information  at  the  source §  366  (2),  281,  290 

payment  of  taxes §  377  (1),  551-556 

returns    §  371,  521-582 

correction  of  §  374,  571-574 

estates  and  trusts §  365,       246 

fiduciary   §  369,       246 

individual   §  367,  521-531 

partnership    §  368,       230 

secrecy  of  §  384,  581-582 

withholding    at   source 261-270 

Administrator,  see  fiduciary 

Advertising,  deductions,  business  expenses Ill 

Affidavits 

abatement  claims   573 

refund  claims    574 

returns   §  371,       530 

Agent 

distinguished    from    fiduciary 241 

making  return    §  367,  522-523 

of  nonresident  523 

withholding    §  350  (10),       261 

Alien,  resident,  personal  exemption  of 206-207 

Alimony 

not  deductible   125 

not  included  in  gross  income 73 

Allotments  under  war  risk  insurance §  359  (2-e),         72 

Allowable  deductions,  nonresidents §  360  (11),  431-435 

see  also  deductions 

Allowance 

for    amortization    :' s 

of  credit  for  taxes  to  nonresidents §  363,  482-484 

to    children    115 

Alternative  basis  of  apportionment  by  nonresidents 470 

Ambassadors,  exemption  of  income 77 

Amended  returns §  374,       123 

Amortization  allowance  

Amount  deducted  and  withheld 

refund  of    523 

return  of 270 

Annual  or  periodical  income 263 

Annuities    40 

nonresident,  nontaxable  §  359  (3),      413 

representing  return  of  capital  —  information  at  source 289 

Apportionment 

business    income    of   nonresident    from    business    carried    on    both 

within  and  without  the  state §  360  (11),       457 

income  of  partnerships  having  nonresident  member 457 

nonresident    ' 457 

alternative  basis  of   470 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


Index  649 

Apportionment  —  continued 

personal  services  of  nonresident,  withholding  at  source 266 

wages  of  nonresident  seamen 454 

Appraisal,  property  acquired  by  gift  or  inheritance 73,  93 

Appreciation  in  value  of  assets 13 

Architect's  services,  deduction  of  fees 125 

Assessments 

local  benefits   §  360  (3),  143 

on  stock    125 

Associations  as  partnerships   228 

distinguished  from  partnership 228 

Assumption  of  tax,  contract  for,  illegal §  385 

Attorney's  fees  of  estates  or  trusts 254 

Auditing  returns    §  377  (2)  571 

Authority  of  Comptroller  for  abatement  and  refund  of  tax §  373,  572 

Automobiles 

depreciation  of    172 

farmers    122 

license  fees,  as  taxes 141 

professional  men    114 

Bad  debts 161-164 

bankruptcy  161 

bonds  ascertained  to  be  worthless 164 

collected  after  being  charged  off  and  deducted 44 

deductions,  in  general  §  360  (1 )   161-164 

examples    162 

existing  prior  to  January  1,  1919,  deductions  for 161 

forgiven    43 

mortgage  debt  163 

rent  unpaid   162 

salaries  unpaid 162 

wages  unpaid 162 

worthless  securities   164 

Bankruptcy,  bad  debts   161 

Baptismal  offerings,  taxable  income 23 

Basis  for  computation  of  net  income §  358,  13 

depreciation   allowance    . .  .  * 171 

determining  gain  or.  loss  from  sale,  gift  or  other  disposition  of 

property    91-101 

returns,  period   526 

Beneficiaries 

distributive  income  of  estate  or  trust,  to  be  accounted  for  by 

§  865  (4),       245 

insurance  contracts  and  policies 72 

nonresident,  taxability  of 245 

resident,  taxability  of 245 

taxable  year  differing  from  that  of  trust  or  estate 245 

tax  returns  for 247 

[References  in  italics  are  to  sections  of  the  law  ;  other  references  are  to  articles 
of  the  regulations.] 


050  Index 

Bequests,  see  gifts 

Betterments,  made  by  lessee,  income  to  lessor 42 

Bills  paid  for  merchandise,  information  at  source*.  .  ^ 

Bonds 

exemption  from  personal  property  tax,  extent  of §  352 

interest  on,  accrued  prior  to  1919 

constructive  receipt  of 46 

exemptions     §  359  (2-d),  74 

information  at  source    §  366  (2),  287-289 

shrinkage  in  value 154 

tax-free  covenant    21 

worthless    164 

Bonuses  to  employees 117 

Bonus  stock,  sale  of,  determination  of  cost 31 

Bookkeeping,  approved  methods  §  358,  13 

see  also  accounting  methods 

Books  of  professional  men   114 

Building 

abandonment,  loss  therefrom  153 

erected  by  tenant  120 

voluntary  removal  of,  deduction  of  loss 152 

Business 

expenses 

deductions    §360  (1),  111-125 

estates  and  trusts    254 

nonresidents    432 

gross  income  from  §  359  (1),  28 

income  of  nonresident,  taxability §  359  (3),  414 

losses,   deductions    §  360  (4),  151 

Business  of  nonresident 
carried  on 

denned 415 

wholly  within  the  state 455 

within  and  without  the  state 457 

without  the  state   456 

Calendar  year,  see  accounting  period 
basis  of 

information  at  source  285 

withholding    at    source 264 

Cancellation  of  debt,  as  producing  income 43 

Capital 

accrual  of  income  prior  to  January  1,1919 79 

charges    125 

estates  or  trusts  254 

expenditures     14 

farmers'  expenses   122 

interest  on,  deduction  of 137 

recovery  of,  through  depreciation  allowance 174 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


In/lex  651 

Cash  basis,  .srr   accounting  methods 

Cash,  form  of  items  of,  as  gross  income  and  deductions  ..............  12 

Casualty 

deduction  of  losses  ..................................  §  300  (0),  151 

losses  from 

deduction    ...............................................  151 

nonresidents    .............................................  435 

Cattle,  farmers'  losses  of  ..........................................  155 

Certificate  of  residence  ......................................  §  366,  267 

period  eiFed  i  ve    ..............................................  268 

renewal    .....................................................  268 

Certified  checks  not  required  in  payment  of  taxes  ....................  554 

Certiorari  to  review  determination  of  Comptroller  ...................  §  315 

Change  in  accounting  period   ................................  §  370,  528 

see  also  accounting  period 

Change  in  method  of  accounting  ....................................  13 

valuation  of  inventories   ......................................  217 

see  also  accounting  methods 

Charges  deductible,  when   .........................................  123 

see  also  deductions 

to  capital  account    ...........................................  14 

sec  also  capital  charges 

Charging  off  depreciation  .........................................  179 

see  also  depreciation 

Charitable  cont  ributions 

deduction  of   ......................................  §  S60   (10),  201 

estates  and  trusts   ..................................  §  365  {2),  251 

partnerships    ...........................................  §  364,  233 

Charitable  corporations,  defined  .............................  ......  202 

Check- 

dishonored,  given  in  payment  of  tax  ............................  555 

uncertified,  in  payment  of  tax  ..................................  554 

Children 

allowances  to  ................................................  115 

dependents    .........................................  §  362  (2),  208 

Choses  in  action,  exemption  from  personal  property  tax,  extent  of.  ...  §  3o2 

Claims 

abatement  of   taxes  ...........................................  573 

sec  also  abatement  of  taxes 

denned    ......................................................  70 

refund  of  t  axes   ..............................................  574 

see  also  refund  of  taxes 

Classification  of  income  of  estates  and  trusts  .......................  242 

Clergymen's  compensation    ........................................  23 

Closing  depreciation  account  ......................................  180 

Clothing,  depreciation  of  ..........................................  172 

(  'olhvtion  of  taxes 

by  action    ...................................................  §  381 

by   warrant    .................................................  §  380 


in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 

9 


G52  Index 

Commissions   23,  111 

buying  and  selling  securities 

executors   254 

referees  and  receivers,  Federal  courts 

withholding  at  the  source 264 

Committee  of  property  of  incompetent 

as  fiduciary   240 

return  of    248 

Compensation 

deducting  and  withholding  at  source §  366  (1),  261 

deductions   Ill,  115-117, 119 

information  at  source §  366  (2),  286 

injuries  §  359  (2-e),  41 

paid 

in  notes    26 

other  than  cash 25 

to  widow  of  employee,  deduction 119 

personal   services,   taxable  income §  S59  (1),  23 

federal  employees  and  officers §  359  (2-f), 

included  in  gross  income 

nonresidents,  taxability §  359  (S),  412 

profits  basis 23 

receivers  of  state  courts 24 

sickness    41 

state  officers  and  employees 24 

unpaid,  bad  debts 162 

Comptroller 

definition  of   §  350,  (1) 

power  to  make  regulations §  383 

Computation 

amount  of  gifts  to  charity 91, 201 

gross  income  of  nonresident   §  359  (3),  411 

income    13 

net  income §  357,  12 

estates  and  trusts §  365  (2),  251,  252,  254 

fiscal  year  ending  in  1919 527 

period    526 

Conditions  of  allowances  of  credit  to  nonresidents 483 

Constructive  receipt 

bonus  stock   45 

examples  of  46 

of  income  46 

Consular  officers,  exemption  of  income 77 

Contents  of  partnership  return §  368,      231 

Contract  to  assume  tax  illegal §  385 

Contracts,  long  term,  ascertainment  of  income 39 

Contributions  by  employees  to  pension  fund 25,  41 

charitable  deductions   §  360  (10),    201 

partnerships    233 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


Index  653 

Cooperative  treading  stamp  system 80 

Copyrights 

amounts  expended  for   125 

depreciation    173 

allowance    177 

sale,  determination  of  gain  or  loss 32 

Corporate  dividends 

inclusions  in  income    §  859  (1),  61-66 

information  at  source 288-289 

returns  of 525 

Corporation,  forgiving  debt  43 

Corrected  returns,  when  payable §  377  (3) ,  551 

Correction  of  returns   §  374,  571-574 

Cost 

administration  of  estate 254 

defending  or  perfecting  title  to  real  estate 125 

feeding  cattle,  expenses  of  farmers 122 

improvements,   depreciation   deduction 174 

inventories  at   217-218 

denned    218 

materials    1 12 

Costumes,  depreciation   172 

Coupons,  interest 

constructive  receipt   46 

information  at  source   289 

Credits  of  income 45 

Crops 

deduction  of  cost  of  producing  by  farmer 122 

losses   122 

destruction  of  loss  by,  deduction 155 

harvested  in  following  year. 30 

shares  in  rent  30 

shrinkage,  deduction   155 

Customs  duties,  deduction    §  360  (3),  142 

Dairy  animals,  depreciation  allowance 30 

Damages 

deductible,  as  of  what  time 123 

for  personal  injuries  or  sickness §  359   (2-e),  72 

Date,  determining  personal  exemption 209 

Dealers  in  securities 

denned    220 

inventories  of 220 

on  installment  plan   34—39 

Debts 

bad  or  worthless 161 

forgiven  or  canceled 43 

see  also  bad  debts 

[References  in  italics  are  to  sections  of  the  law  :  other  references  are  to  articles 
of  the  regulations.] 


''..VI:  Index 

Decedent's  estate  during  administration §  36o.       253 

return  for    '. 542 

Deducting  and  withholding  at  source,  see  withholding  at  the  source 
Deductions 

apportionment  of  nonresident   §  860  (11) ,       457 

alternative  basis 470 

employees  and  officers 452 

seamen   451 

assessments  for  local  benefits §  360  (3),       143 

bad  debts  §  360  (1),  161-164 

bonuses  to  employees 117 

business  expenses §  360  (1),  111-125 

nonresident    §  360   (11),       432 

charitable  contributions §  360  (10),       201 

compensation   115-117 

computation  of  net  income 12 

customs  duties  §  360  (3),       142 

depletion    §  36.0  (&),.       190 

depreciation    §  360  (8),  171-181 

see  also  depreciation  deductions 

estates    and    trusts §  365  (2),  251,  254 

expenses,  business   §  360  (1),  111-125 

farmers'    expenses    30, 122 

losses     155 

import  duties   §  360-  (3),       142 

inheritance  taxes   144 

interest    §  360  (2),  136-137 

nonresident    434 

living  expenses    125 

long   term    contracts 29 

losses   §  360  (4,  J,  6),  151-155 

nonresident 435 

sale  of  copyrights 32 

good  will    33 

patents    32 

property,  nonresident   417 

securities,  nonresident    416 

nonresidents    §  360  (11),  431-435,  481 

obsolescence    153 

pensions    119 

personal  and  family  expenses 125 

services,  compensation  for 115-117 

rentals     120 

repairs    113 

shrinkage  in  securities  and  stocks 154 

tariff  duties    %  360  (3),       142 

taxes    141-144 

nonresident    434 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


Iiydex  655 

Deductions  —  continued 

traveling  expenses    118 

trusts     §  Mo   (2),  251,  254 

uncollectible    accounts    §  3GO  (7),  161 

unpaid  rents,  as  bad  debts 162 

salaries  and  wages  as  bad  debts 162 

when  deductible    123 

Default   in   installment   payments 34/37,  38 

Deferred  payments,  sales  of  real  estate .- 36,  38 

Definitions 

annual  or  periodical  income 2(>/! 

business  carried  on 415 

wholly   within   the   state 455 

wholly  without  the  state 45(> 

charitable    corporal  \<m>    aAp- 

claim  existing  on  January  1,  1919 79 

comptroller §  350  (1) 

cost  of  inventories 218 

dealer  in   securities 220 

determinate   income    263 

educational   corporations    202 

farm     30 

farmers     30 

fiduciary     §  350  (5),  240 

fiscal    year    §  350   (4),  526 

fixed  and  determinable  income.  . 263 

gross   income    §  859,  11.21 

nonresident    411 

head  of  family 206 

income     11 

nonresident     401 

living  together,  husband  and  wife 207 

market  value  of  inventories 219 

need  not  be  in  form  of  cash 12 

net   income    §  .957,  1 1 

nonresident 502 

estate  or  trust 243 

period  of  administration  of  estate  and  trust 2  .">.•> 

periodical    income    .  .  : 263 

religious  corporations    202 

residence     503 

resident     §  350   (7),  501 

estate  or  trust 243 

scientific  corporations   202 

taxable    year    §  ,1:10   (.',).  5-j«; 

taxpayer     §  .1,10   i ,?  > .  3 

time  to  be  taken 13 

transient     r>i  >2 

withholding    agent     §   .1~>0   (10),  281 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


656  Index 

Demolition,  buildings,  deduction  of  loss 152 

Dependents,    exemption    for §  362  (2),  208 

Depletion  of  mines,  oil  and  gas  wells,  natural  deposits  and  timber.  .  .  .28,  190 

deductions   §  360  (9),  190 

reserve  distributed    66 

Depreciation  deductions   §  360  (8),  28,  171-181 

amount     17'1 

automobiles    172 

basis  of  allowance 171 

capital  sum  recoverable  through  depreciation  allowances 174 

charging    off    

closing    account    180 

clothing     : 

computation  of   allowances 175-179 

computing  loss   151 

copyrights    173 

costumes     172 

dairy  animals    181 

designs    178 

draft  animals    181 

drawings   and  models 178 

expenditures  in  restoring  property  or  making  good  the  exhaustion.  174 

farmers     181 

franchises   173 

furniture    172 

good  will    173 

intangible  property 173 

inventories  172 

leases 173 

licenses    173 

live  stock  181 

machinery,  farm 181 

methods  of  computing 175-176 

minerals,   not  allowable 172 

models  178 

modification  of  method  of  computing  allowances 176 

natural  resources,  not  allowable 172 

nonresidents     431 

patent   or    copyright 173,  177 

patterns     178 

personal   effects    172 

pleasure  vehicles    172 

reserve  distributed  66 

residence  property   172 

secret  formulae  or  processes 173 

stock  in  trade,  not  allowable 172 

theatrical  costumes    172 

trade  brands   173 

marks    173 

names    173 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


Index  657 

Depreciation  reserve 

distribution  from   66 

expenditures  to  restore  depreciation  as  charge  against 14 

Designs,   depreciation,   deduction 178 

Determinable  income 

definition    263 

information  at  source §  366  (2),  281-290 

Determination  of  gain  or  loss  from  exchange  of  property §  354,  91-101 

Devises,  annuities  charged  upon  devised  land 40 

Disability  insurance    72 

Disclosure  of  returns,  penalties  therefor §  384,  582 

Discounted  value  of  notes  received  as  compensation 26 

Diseased  stock,  losi  of  farmers',  deductions 155 

Dishonored  checks  given  in  payment  of  tax 555 

Distribution  from  depletion  or  depreciation  reserve 66 

in  liquidation,  taxability   65 

Distribution  of  income  tax  revenue I  382 

Distributive  shares  of  partners,  taxability 46, 226,  229 

Dividends 

accumulated     61 

constructive  receipt  of 46 

declaration  merely,  does  not  constitute  distribution 61 

declared  prior  to  January  1,  1919,  excluded  from  gross  income. ...  79 

farm  loan  association §  359  (2d),  75 

federal  land  banks '. 75 

reserve  banks,  taxability 76 

from  depletion  reserve 66 

information  at  source .288-289 

in    gross    income §  359  (1) ,  61-66 

liquidating  taxability   65 

paid  in  property 62 

securities  of  other  corporations 62 

up  policies  40 

return  of    525 

scrip    62 

stock 63 

sale  of    64 

taxability  of  nonresident's §  359  (3),  419 

Donations,  employees    117 

Draft  animals 

deduction  of  cost  by  farmer 122 

depreciation,    deduction    181 

profit  from  sale  by  farmers,  as  taxable  income 30 

Drawings,  depreciation,  deduction 178 

Drummer,  nonresident,  withholding  at  source 266 

Due  date  of  return §  371,  541 

Dues  to  professional  societies 114 

Duties  of  withholding  agent §  366,  262 

[References  In  italics  are  to  sections  of  the  law ;  other  references  are  to  articles 
of  the  regulations.] 


058  Index 

Dwelling 

depreciation  of    172 

insurance  of    121 

Earnings    of    salesmen,    nonresident,    taxable    income 451 

withholding    at    source 2(5<> 

Education  corporations,  denned 

Effect  of  instruction  on  forms 531 

Emancipated   children,   return    in   ca.se   of 524. 

Employees 

bonuses  to    117 

compensation,    as    taxable    income §  339   (1) ,  23 

constructive  receipt  of  bonus  stock 45 

federal,  taxability  of  salaries 8  3~>9  (2f  i, 

information  at  source  as  to  payments  to §  366  (2),  2SG 

leaving  employer,  withholding  at  source 262 

living  quarters,  value  as  taxable  income 25 

premiums  on  insurance,  paid  by  employer,  deduction 121 

taxable  income    25 

promissory  notes  in  payment  for  services,  taxable  income 20 

retired,  payments  to,  deduction 110 

state,  taxability  of  compensation  from 24 

Employers 

duties  as  withholding  agent §  366,  262 

liability  insurance,  deduction  of  premiums 121 

Endowments,  sums  in  excess  of  premiums,  taxable  income.  .§  35!)  (2~b>.  72 

Estate  taxes,   deduction 144 

Estates  and  trusts §  365,  240-255 

Estates 

closed,  return  on  final  accounting 542 

contributions  of   §  365  (2),  251 

deductions  allowed    $  365  (2).  254 

exemptions    allowed    , §  365   (3 ) .  244 

expenses  of  administration  deductible 125.  253..  254 

fiduciary,    defined    §  3-10  (5).  240 

income  of,  computation    §  365  (2).    251.  252,  254 

income  of,  accumulated  by  fiduciaries 242,  245.  24(5 

classified   242 

computation   of    §  365  (2).  251 

held  for  future  distribution 242.  244,  24 1; 

taxed  to  beneficiaries §  365  (-'/). 

fiduciary    §  365  (3),  244 

liable   for   payment   of   tax 255 

resident  and  nonresident  distinguished 24:; 

returns  where  more  than  one  trust 

statutory  allowance  paid  to  widow 244 

Evangelists,  gifts  or  contributions  to,  as  taxable  income 2:> 

Example  of  bad  debts 1G2 

constructive    receipt    46 

Excessive  compensation,  deductions lid 

tax  withheld    523 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to  article 
of  the  regulations.! 


Index  G50 

Exchange  of  property §  35-rf,         94 

basis  for  determining  gain  or  loss §  355,  91-101 

determination  of  gain  or  loss  from 74-91 

different  kinds  of  property 96 

farm  produce  for  merchandise 30 

property  and  stock 97 

property  without  market  value 95 

stock  for  other  stock §  355,         95 

Excise  taxes  and  federal  duties,  deductions §  360  (S),       142 

• 
Executors,  commissions 

deductions    1 25 

exemptions    209 

Exemptions    77 §  362,  206-210 

accounting  period  changed §  370,       529 

date  determining 209 

decedent   209 

dependents   §  362  (2),       208 

estates  and  trusts   §  365  (3),       244 

head  of  family  §  362  (1),       206 

husband  or  wife  dying 209 

married  persons §  362  (1) ,       207 

officer  or  employee  of  United  States §  362  (3),       210 

personal   208-210 

personal  property,  from  taxation,  extent  of §  352 

prorating  between  husband  and  wife 209 

resident  alien    206-207 

single  persons §  362   (1),       205 

trusts    §365  (3),       244 

Exhaustion  of  property,  deduction §  360  (8),       171 

Expense 

business    28,  111 

classification  as  between  capital  and  income 14, 125 

estates  and  trusts 125 

family,  deduction  of 125 

farmers    .  .  . 122 

legatee  125 

living,  deduct  ion   of   125 

not.  deductible    125 

personal  versus  business   125 

professional    114 

traveling  * US 

Extension  of  time,  for  filing  return §  371,  542,  543.  551 

interest  charged    553 

Fm-tor  used  in  apportioning  income  of  nonresident 457 

Failure  tu  tile  return,  penalties §  376,       556 

Failure  to  pay  tax.  penalties §  379   (2),       556 

[References  in   italics  are  to  sections  of  the  law:  other  references  are  to  articles 
of  the  regulations.] 


GGO  Index 

Fair  market  value 

ascertainment    92 

good  will 33 

January  1,  1919   92 

False  returns 

penalties    §  376,  556 

understatement  of  income 571 

Family  allowances  under  war  risk  insurance §  359  (2-e),  72 

expenses,  deduction  of 125 

Farm 

machinery  depreciation  allowance 122,  181 

operated  for  pleasure  30,  122, 155 

products  exchanged 30 

property,  depreciation  of 181 

Farm  loan  association,  dividends §  359  (2-d),  75 

Farms  and  farmers 30,  122,  181 

expenses    122 

gentlemen  farmers   122,  155 

losses,  deductions   155 

Federal  estate  taxes 

court  fees  78 

deduction    144 

duties  and  excise  taxes §  360  (S),  142 

farm  loan  securities §  359  (2-d),  74 

income  from  contracts 22 

land  bank  dividends §  359  (2-d),  75 

reserve  bank  dividends,  taxability 76 

salaries §359  (2-f),  23 

Feeding  live  stock 122 

Fees 

federal  officers,  taxability §  359   (2-f),  78 

notary  public 24 

professional,  withholding  at  source 264 

receivers,  federal  courts §  359  (2-f),  78 

referees,    federal    courts §  359  (2-f),  78 

trustees   254 

Fiduciary 

denned   §  350  (5),  240 

distinguished  from  agent 241 

having  entire  charge  of  income  of  individual,  must  make  return.  .  247 

liable  for  payment  of  taxes 255 

returns   §  369,  244. 246 

more  than  one  trust  or  estate 249 

place  for  filing 544 

sales  by 252 

Filing 

-claim   for    abatement §  374,  573 

returns 

extension  of  time §  37.?,  543 

place  544 

when  541 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


Index  661 

Fire  insurance 

deduction  of  premiums 121 

on  residence,  premiums  not  deductible 121 

Fire  losses,  deduction  §  360  (6),  151, 155 

Fiscal  year 

defined    §  350  (k),  526 

distributive  share  of  partners 229,  232 

ending  in  1919,  return  of 527 

partnership    232 

Fixed  or  determinable  annual  or  periodical  income 

defined  263 

information  at  source §  366  (2),  281-290 

withholding  at  source §  366  (1),  261 

Flood  losses,  deduction §  360  (6),  151, 155 

Fluctuation  in  values  of  stocks  and  bonds 154 

Foreign  commerce 

consular  officers,  taxability 77 

exemption  of  income 77 

taxability  of   profits 21 

Forgiveness  of  indebtedness,  taxable  income 43 

Forms 

certificate  of  residence   §  366  (1),  267 

fiduciary  returns 246 

partnership  returns   230 

returns  for  nonresidents 523 

residents   522 

use  of  prescribed  forms 531 

Franchises,  depreciation  of 173 

Fraudulent  returns,  penalties §  376,  556 

Furniture 

depreciation   172 

professional  men 114 

Gain  or  loss  from  sales 

basis  for  determining  §  353,  91-101 

copyrights 32 

good  will    33 

installment  sales    34-39 

patents   32,  177 

property 93 

received  by  gift  or  inheritance 93 

real  estate  in  lots 35 

sales 

by  fiduciaries 252 

of  property,  nonresident 417 

securities,  nonresident 416 

Gas  wells,  depletion §  360  (9),  190 

Gifts 

charitable,  allowable  deductions §  360  (10),  201 

clergymen,  etc.,  taxable  income 23 

estates  and  trusts,  allowable  deductions §  365  (2),  251 

[References  in  italics  are  to  sections  of  the  law ;  other  references  are  to  articles 
of  the  regulations.] 


'•«i-  Index 

Gifts  —  continued 

excluded  from  gross  income §  359   (2-c),  73 

forgiveness  of  indebtedness 43 

gain  or  loss  on  disposal  by 91 

partnership,  not  allowable  deductions 226,  233 

sales  of  property  acquired  by 93 

to  employees 117 

additional  compensation 117 

Good  will  depreciation 

deduction   173 

gain  or  loss  from  sale  of 33 

Government  bonds 

taxability    of    interest    on. §"3J.O   (2-d),  74 

contracts,  taxability  of  profits 22 

income  from,  taxable  income  22 

employees,    taxability    of    compensation §  35.9   (2-f),  78 

Gross  income §  359,  21 

annuities 40 

appreciation  in  value  of  property 13 

compensation  for  personal  services 21 

constructive  receipt  of 46 

copyrights,  sales   32 

deductions,  see  deductions 

deferred  payment,  sales  of  real  estate 36,  38 

denned    §  359,  11,  21 

dividends    61-66 

estates  and  trusts   §  365  (2),  251 

exchange  of  property §  3J-J,  91 

exclusions    " §  359  (2),  71-80 

farmers    30 

federal  contracts,  profits  from 22 

forgiveness  of  indebtedness 43 

from  business,  nonresident 414 

gifts  of  property  §  359   (2-c),  91 

good  will,  sales   33 

inclusions §  359,  21-46 

installment  plan  sales 

of  personal  property 34,  39 

real  estate   35-39 

insurance  policies,  proceeds  of §  3-50   (2-a),  40 

long  term  contracts  29 

lots,  sale  of  real  estate  in ,  35,  39 

municipal   contracts,   profits  from 22 

nonresident §  359   (3),  411 

patents,  sales  of   32 

rent    42 

rents  and  royalties,  nonresident 418 

sale  of  property  §  353,  91 

[References  in   italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


Index  663 

Gross  income  —  continued 

stale  contracts,  profits  from  ................................... 

taxable    year    ......................................  §  3oO   (Jt),  44 

time  as  of  which  to  be  accounted  for  ..............  §  3~>9   (  I  ),  13,  44,  46 

Guardian,  returns  for  infants  ......................................  24S 

Head  of  family 

definition     ............................  .......................  206 

exemption    .......................................  §  362   d),  206,  521 

Health  insurance' 

premiums  paid  by  employers  as  taxable  income  to  employee  ......  25 

taxability  of  amount  received  ......................  §  35!)   (2-c),  72 

Holiday,  due  date  for  filing  return  ................................  .141 

Husband  and  wife 

ma  rriagc   settlement   as  gift  ...................................  73 

one  dying,  exemption  of  survivor  ...............................  209 

personal  exemption   ...............................  §  362   (  1),  207.  209 

what  constitutes  living  together  ...............................  207 

Illegal  transactions,  deduction  of  losses  ............................  151 

Dine 

insurance  or  damages  received  on  account  of  ..........  §   35!)   (2-c),  72 

return  by  iigent  where  taxpayer  is  ill  ......................  §  367,  .122 

Import  duties,  deductions    ...............................  §  360   (3),  142 

Improvements,  by  tenant 

cost  of,  added  in  determining  depreciation  allowance  ............  174 

deduction     ..................................................  120 

••.   income   to   lessor  .......................................  42. 

Inclusion  in  gross  income,  see  gross  income 
in   inventory,  see  inventories 

Income 

accruing  prior  to  January  1.  1919  ..............................  1& 

annual  or  periodical,  defined  ..................................  263 

credited   .....................................................  45 

defined  .............  .........................................  11 

determinable,  defined    .........................................  263 

estates  and  trusts 

classification    of    .........................................  242 

computation  of    ..........................  §  36  .7   (2),  251,  252,  254 

taxed 

to    beneficiaries    ............................  §  365   (.',  )  ,  245 

fiduciary     ......  ............................  §  365  (3  )  ,  244 

exempt    from  taxation    ..............................  §  359   (2),  71 

federal,  state  and  municipal  contracts  ..........................  22 

fixed,  defined    ................................................  263 

foreign   consular  oflicers  .......................................  77 

from  vessels,  nonresident,  taxability  ............................  454 

gifts   and  bequests    ................................  §  350   (2-c).  73 

information   at   source    ............................  §   366   (2),  281.  29o 

minors   ......................................................  524 

nonresident,  see  nonresident 


in  italics  arc  1<>  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


66-i  Index 

Income  —  continued 

not  reduced  to  possession 45 

periodical,  denned 263 

tax-free §359  (2),  71 

trusts 

classification  of  242 

computation  of §  865  (2),  251, 252,  254 

withholding  at  the  source §  366  (1),  261-270 

Income  taxes,  not  deductible 141 

Income  tax  law,  scope  of 1 

Indebtedness,    forgiveness    of 43 

Individual  returns,  see  returns 

Information   as   to   actual  owner,   information   at  the   source 290 

Information  at  the  source §  366  (2),  281-290 

annuities  representing  return  of  capital 289 

bills  paid  for  merchandise,  telephone,  etc 289 

board    and   lodging   of    employees 286 

dividends    288-289 

fiscal  agents  of  governments,  estates  and  municipalities,  no  return 

required  from 287 

information  as  to  actual  owner 290 

interest  payments    289 

living  quarters,  value  of 286 

no  returns  where  tax  was  withheld 283 

payments 

amount  of  $1,000 281,  285 

corporations,  return  of,  not  required 289 

fiduciary,  return  of,  not  required 289 

paid  in  1919 284 

partnership,  return  of,  not  required 289 

to  employees  in  excess  of  $1,000 286 

no  returns  required,  which 283,  280 

professional  fees,  no  returns   of,   required.  .  .  . 289 

rent  payments  ' 289 

returns   of    246 

by  fiduciaries    246 

estates  and  trusts 246 

from  whom  required 281 

payments  in  1919 284 

required 281 

what  included 285 

sub-contractors,  returns  by 286 

Infringement  of  patent,  recovery  for 44 

Inheritance   taxes,    deduction 144 

Injuries,  compensation  paid  on  account  of §  359   (2-e),  41 

Insane  person,  committee  of,  as  fiduciary 240 

return  by  committee 248 

Inspection  of  returns   §  38//,  581 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


Index  665 

Installment  plan 

real  estate    35, 39 

sales  of   personal  property 34,  39 

Instructions  with  forms,  have  effect  of,  regulations 531 

Insurance 

allotments  and  allowances  under  war  risk  insurance,  taxability.  . 

§  359  (2-e),         72 

annuity  policies,  taxability 40 

policy  value  as  of  January  1,  1919,  excluded  from  gross  income.  .          79 
premiums 

business  insurance,  deduction Ill,  121 

compensation  to  employee 25 

employers'  liability,  insurance 121 

fire  insurance    121 

life  insurance  for  employees 121 

storm  insurance    121 

theft  insurance   121 

proceeds   of   policy,   taxability §  359  (2-aj,         72 

Intangible   property,   depreciation 173 

Interest 

accrued  prior  to  January  1,  1919,  excluded  from  gross  income.  ...          79 

bank   deposits,   constructive   receipt  when   credited 46 

constructive  receipt  of 46 

deduction  of 

nonresidents    §  360  (2),       434 

residents    §  360  (2),       136 

included  in  gross  income §  359   (1),  21,  74 

municipal  obligations,  taxability §  359  (2-d),         74 

national  farm  loan  association,  obligations  of §  359  (2-d),         75 

nonresidents,    taxability    of §  359  (3),       419 

on  capital 137 

payments  of,  information  at  source §  366  (2),  287,  289 

state  and  municipal  obligations,  taxability §  359  (2-d).         74 

tax   553 

unearned  137 

United  States  bonds,  taxability §  359   (2-d),         74 

Inventories   §  856,  216-220 

cost    217-218 

dealers  in  securities 220 

deduction  determined  by Ill 

depreciation  of,  not  allowable 172 

exclusions  from 216 

farmers     30 

live  stock   181 

inclusions  in    216 

market    217,  219 

necessity  of    14 

valuation    of    217 

change   in   method -17 

[References  in  italics  are  to  sections  of  the  law  ;  other  references  are  to  articles 
of  the  regulations.] 


666  Index 

Investment  tax  paid,  exemption  of  interest  on  bonds  on  which 

§  359  (2-d),  74" 

Isolated  installment  transactions 3i> 

Isolated  transactions  without  the  state,  nonresident 415 

Items  not  deductible 125 

Joint  exemption  of  husband  and  wife §  362  (1),  207 

return  of  husband  and  wife 52 1 

Judgment  paid 

recovered  when  included  in  income .' 44 

when  deductible    123 

Laborers,  nonresident,  withholding  at  source  from §  366  (1),  266 

Land  bank,  dividends  of,  taxability §  359  (2-d),  75 

Landlord  and  tenant 

crop  shares,  tax  on 30 

improvements  by  lessee 42,  120 

rent,  see  rent 

Last  due  date  for  filing  return §  37.7,  541 

Legatee,  expenses  of 125 

Lessee,  improving  property 42 

Lessor,  receiving  rent 42 

Liability  of  fiduciary  for  payment  of  the  tax 255 

License 

depreciation   173 

taxes,  deductions    142 

Life  insurance  premiums 

deduction    121 

paid  by  employer  as  taxable  income  to  employee 

proceeds    of,    taxability §  350  (2-a),  40,  72 

Limited  partnerships 227 

Liquidating  dividend,  taxability 65-66 

Live  stock 

cost  of  raising,  deduction 122 

depreciation  deduction IS  I 

losses,  deduction 155 

profit  from  sale  of,  as  taxable  income 30 

Living  expenses,  deduction  of 125 

Living  quarters,  furnished  to  employees  as  taxable  income 

Living  together,  husband  and  wife,  defined 207 

Local  benefits,  taxes  and  assessments  for,  deduction §  360  (3),  141,  ]43 

Long  term  contracts,  ascertainment  of  gross  income  from 

Losses 

basis  for  determining  §  353,  91-101 

business,  deduction    151 

closing  depreciation  account 180 

computation  of   151 

conversion  of  municipal  warrants  or  securities  into  cash 27 

crops  deductions 1  ">-"i 

deductions  for    §  360   d,  J,  6),  151-15-") 

depletion,  see  depletion 

[References  in  Italics  are  to  sections  of  the  law  ;  other  references  are  to  article 
of  the  regulations.] 


Index  6GT 

Losses  —  continued 

depreciation,  see  depreciation 

destruction  of  property,  deduction 151-155 

embezzlement,  discovery  of,  when  deductible §  S60  (6),  123 

estates  and  trusts 252 

farmers   155 

fiduciaries,  on  sale  of  property 252 

fire    §  S60  (6),  151 

good  will 33 

good  will,  sale 33 

illegal  transactions,  deduction    151 

indemnity,  deduction  in  computing  loss 151 

insurance,    recovery   reducing 151 

live  stock,  deductions 155 

nonresident,  deductions 435 

obsolescence    153 

of  residence   504 

patents    32 

property    91 

sale  of  property 416—417 

sale  of  stock  received  as  dividend 1W 

or  other  disposition  of  property §  353,  91-101 

sales  of  copyrights 32 

scrapping    of   machinery,    deduction 152 

shipwreck    §  860  (6),  151 

shrinkage  in  securities  and  stock,  deduction 154 

stock  and  rights §  353,  31 

storm  §  360  (6),  151 

theft   .  , §  360  (6),  151 

discovery  of,  when  deductible 123 

transactions  entered  into  for  profit,  deduction §  S60  (5),  151 

useful  value,  deduction  because  of 153 

voluntary  removal  or  demolition  of  buildings 152 

Machinery 

deduction  of  losses  due  to  obsolescence 153 

farm 122 

depreciation  deduction    181 

losses  from  scrapping  of 152 

profit  from  sale,  as  taxable  income :'.<> 

Mailing  returns    541 

Management  expenses,   deductible Ill 

Market  value 

ascertainment    02 

fluctuations,  deduction  of  losses  due  to 154 

good  will    :'>.: 

inventories     217,  2H> 

defined 210 

[References  in  italics  are  to  sections  of  the  law  ;  other  references  are  to  articles 
of  the  regulations.] 


668  Index 

Market  value  —  continued 

modification  of  method  of  computing  depreciation  allowance  because 

of  change  in 176 

product  received  in  exchange  for  farm  produce,  as  income 30 

thing  paid  as  compensation  for  personal  services 25 

Marriage  fees 

settlement  as  gift 73 

taxable  income    23 

Married  persons 

exemption    §  362  (1),      207 

returns    521 

Materials,  cost  of  business  deduction 111-112 

Meaning  of  net  income,  see  net  income 

Method  of  computing  depreciation  allowance,  see  depreciation 

Methods,  accounting,  see  accounting  method 

Mileage,  excess  over  actual  traveling  expenses  as  income 118 

Military  service,  allotments  and  allowances  under  war  risk  insurance 
act    §  359  (2-ej,         72 

Minerals,  depreciation  of,  not  allowable 172 

Mines,  depletion §  860,  (9),       190 

Ministers 

fees,  gifts,  etc.,  as  taxable  income 23 

foreign  governments,  exemption  of  income 77 

Minors 

dependents 524 

returns   of    524 

Models,  depreciation  deduction 178 

Modification  method  of  computing  depreciation,  see  depreciation 

Money  on  hand  or  on  deposit,  exemption  from  personal  property  tax, 
extent  of    §  352 

Mortgaged  property,  purchased  by  mortgagor 163 

Mortgages 

bad  debts   163 

tax  paid,  income  taxable 74 

Municipal  bonds 

contracts,  income  from,  taxable  income 22 

interest  on,  taxability §  859  (2-d),         74 

taxes,  deduction    §  360  (8),       141 

National  farm  loan  association,  dividends  and  interest,  taxability 75 

Natural  deposits 

depletion    §  360  (9),       190 

resources,  depreciation  of,  not  allowable 172 

Naval   service,   allotments   and   allowances  under  war  risk   insurance 
act §  359  (2-e),        72 

Need  of  inventories §  356,       216 

Net  income 

accounting  methods   14 

period    526,  528 

computation  of   12-13 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


Index  669 

Net  income  —  continued 

definition  of §  357,  11 

partnership    226 

see  also  deductions 

New  York  State  and  municipal  bonds,  interest  on §  359  (2-d),  74 

New  York  stock  exchange,  sales  on,  by  nonresident 416 

Non-deductible    items    125 

Nonresident 

agents  acting  for 523 

allowable   deductions    §  360  (11),  431,  435,  481 

allowance  of  credit  for  taxes §  363,  482-184 

condition  of   483 

redetermination    of    484 

annuities,  nontaxable    413 

apportionment  of  business  income  from  business  carried  on  both 

within   and   without   the   state §  360  (11),  457 

alternative   basis    470 

beneficiary,  taxability   245 

business  carried  on 

defined     415 

wholly  within  the  state 455 

wholly  without  the  state 456 

compensation  for  personal  services 412 

computation  of  gross  income  of §  359  (3),  411 

conditions  of  allowance  of  credit  for  taxes §  363,  483 

deductions    §  360  (11),  431-435,  481 

business  expenses   432 

interest   434 

losses  435 

taxes 433 

defined 502 

definition  of  income  sources  within  the  state 401 

disposition  of  property 417 

dividends,  when  included  in  gross  income §  359  (3),  419 

estates  and  trusts,  distinguished  as  to  residence 243 

gross  income  of 

business §  359  (3),  414 

defined 411 

interest  and  dividends 419 

rents  and  royalties 418 

sales  of  property 416-417 

inclusions  in  gross  income  of 401.411 

income  of 

from  vessels,  taxability 454 

sources  within  the  state,   defined 401 

interest  and  dividends 

deduction    434 

when  included  in  gross  income §  359  (3),  419 

losses,  deductions §  360  (11),  435 

minors,  returns  of   524 

partner,  taxability  411,  457 

[References  in  italics  are  to  sections  of  the  law ;  other  references  are  to  articles 
of  the  regulations.] 


670 

Nonresident  —  continued 

pensions,   received,   nontaxable 41,  413 

redetermination  of  tax  when  credit  proves  incorrect 484 

rents  and  royalties  as  income 418 

returns   of    523 

salaries    and   wages   of   nonresident   employees   and   officers 452 

sale  of  bonds 

property,  gain   or  loss,   taxability   and  deductions 417 

stocks,  bonds,  and  other  securities,  gain  or  loss 41f> 

taxable 416 

salesmen,  earnings  of 451 

how  apportioned 451 

withholding  at  source 266 

seamen    453 

services  performed  wholly  without  the  state,  not  taxable  income.  .  412 

no  withholding  required 265 

taxability  of  business  income §  3-59   (3),  414 

taxes  deductible .  433 

wages  of  seamen 453 

who  is   502 

withholding  at  source  on  payments  to §  366   (1),  261-270 

see  also  withholding  at  source 
No  par  value  stock 

received  in  exchange  of  other  stock 9S 

subsequent  sale  of,  determination  of,  gain  or  loss 99 

Notaries  public,  taxability  of  fees  of 24 

Notes 

compensation  paid  in,  taxable  income 26 

exemption  from  personal  property  tax,  extent  of §  352 

Notice  of  change  in  accounting  period §  370,  528 

Obsolescence 

copyrights 177 

deductions    153, 171 

patents    177 

Office  expenses  of  a  professional  man 114 

Oil  wells,  depletion §  360  (9),  190 

Operation  of  automobile  by  professional  men,  deductible 114 

Orchards,  deductions  of  amounts  expended  in  development  of 122 

Ostensible  salaries,  deductions   of 115 

Parents,  returns  524 

Partnerships   §  36.', ,  220, 233 

accounting  period  of,  changed' 230 

charitable  contributions  by 226,  233 

computation  of  net  income  of 226 

^distinguished  from  association 22S 

having  nonresident  member,   apportionment   m   income 411,457 

limited 227 

net  income  of 226 

[References  in  italics  arc  to  sections  of  the  law  ;  other  references  are  to  articles 
of  the  regulation  s.l 


Index  671 

Partnerships  - —  continued 

not  subject  to  tax   226 

readjustment  of  interest  of 101 

returns §  36$,  226,  230,  231,  544 

fiscal  year  ending  in  1919 232 

of  members  of   229 

place  for  filing 544 

Patent 

depreciation,  deduction   173,  177 

infringement,  recovery  for,  when  included  in  gross  income 44 

royalties  as  t axable  income 42 

sale  of,  determination  of  gain  or  loss 32 

Patterns,  depreciation,  deduction   178 

Payment  as  to  which  no  return  of  information  is  required 289 

of  taxes   §  379,  551-556 

at  source 270 

by  public  utilities,  deduction 124 

dishonored  checks,  procedure 555 

penalties     §  379,  556 

receipts    552 

time    §  377,  551 

uncerti  lied  checks   554 

Payments 

interest  on  coupon  bonds,  information  at  source 289 

received  in  warrants  or  securities 27 

registered  bonds,   information  at  source 287 

requiring  information  returns 285 

Penalties    §  379,  553.  556 

disclosure  of  returns §  3SJf,  582 

Pension  fund,  contributions  to,  taxable  income 25 

Pensions 

deductions     119 

nonresident,  taxability 41,413 

taxability  of 23,  41 

Per  diem  allowance  in  lieu  of  subsistence,  excess  as  taxable  income.  . .  .        US 
Period,  accounting,  see  accounting  period 

covered  by  returns   526,  529 

of  administration,  of  estate  or  trust,  defined 253 

Periodical  income,  defined 263 

Personal 

effects,  depreciat  ion    172 

exemptions    §  36'2,  205-210 

date   determining 209 

head  of  family 206 

individual  205 

married   person    207 

officei-  or  employee  of  the  United  States 210 

single  person    205 

[References  in  idilics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.  1 


672  Index 

Personal  —  continued 
injuries 

deducibility  of  damages 123 

insurance   or    damages    received,    taxability §  359  (2-e),  72 

property 

exemption  from  personal  property  tax,  extent  of §  352 

service 

sales  on  installment  plan 34 

compensation,  see  compensation 

place  of  payment,  withholding  at  source 265 

Place  for  filing  returns §  371,  544 

Pleasure 

farms)  operated   f or 

vehicles,  depreciation 172 

Policies,  proceeds  of,  taxability §  359  (2-a),  72 

Possession,  income  reduced  to 45-46 

Power  of  revision  by  Comptroller §  373,  571 

Premium  coupons,  basis  of  deductions  for  redemption  of 80 

Premiums,  insurance 121 

paid  by  employer,  deduction 121 

taxable  income  to  employee 25 

sums  in  excess  of,  taxable  income §  359  (2-b),  40 

Prescribed  forms,  use  of 531 

Preserving  returns §  38Jt  (1),  581 

Procedure  with  respect  to  dishonored  checks 555 

Proceeds  of  insurance,  taxability  72 

Professional 

fees,  return  of,  information  at  source,  not  required 289 

men,  expenses  deductible 115 

fees  of,  withholding  at  source 263 

Profit  and  loss 

sale  of  property,  nonresident 417 

securities,  nonresident 416 

Profits 

deferred  payment  sales  of  real  estate 

farmers   30 

foreign  commerce   21 

installment  plan,  sales  of  real  estate 35-39 

long  term  contracts   29 

sales  of 

copyrights    32 

estates  and  trusts 252 

good  will    33 

patents  32 

property    91 

stock  and  rights  31 

Promissory  notes,  compensation  paid  in,  as  taxable  income 26 

Proof  of  residence 503 

Propaganda  associations,  contributions  to,  not  deductible 202 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


Index  673 

Property  acquired  prior  to  January  1,  1919 

distributed  as  dividends  62 

exchanged 

determination  of  gain  or  loss  from 94-96 

for  stock 97 

sale  or  disposal  of §  853,  91 

Public  park 

gift  of  real  estate  to  city  for,  not  allowable  deduction 201 

utilities,  payments  by,  deductions 124 

Purchase  money  mortgage,  bad  debt 163 

Railroad  employees,  taxability  of  compensation  during  period  of  federal 

control 78 

Ranches,  deductions  of  amounts  expended  in  development 122 

Rate  used  in  deducting  and  withholding 2161 

Rates  of  tax §  351,  2 

Readjustment  of  partnership  interests 101 

Real  estate 

installment  transactions 37 

sales  involving  deferred  payments   36,  38 

by  heirs,  taxability  of  proceeds 244 

sold  in  lots 35 

Reasonable  cause,  delay  in  filing  returns §  311,  543 

Receipt  basis  of  computation  of  net  income 13 

Receipts  for  tax  payments  552 

Receivers 

commissions,    taxability,    federal    courts 78 

fiduciary   240 

returns  of 250 

state  courts   24 

Records 

accounting,  necessity  of  maintaining 14 

depreciable  property    179 

Recovery 

for  infringement  of  patent 44 

of  judgment,  when  included  in  gross  income 44 

of  taxes  by  action §  381 

Redemption  of  trading  stamps 80 

Redetermination  of  tax  when  credit  proves  incorrect 484 

Referee,  fees  of,  federal  court,  taxability 78 

Refunds 

authority  therefor §  37^,  572 

claim  therefor 123,  574 

nonresident     523 

penalties     574 

taxes     574 

Regulations,   power  of  comptroller  to  make §  383 

Religious  corporations 

defined     202 

workers,  gifts  and  contributions  to,   taxable  income 23 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


f » i  -i  Index 

Removal    of   buildings,    deduction   of    loss ' 152 

.Renewal   of   residence  certificate 268 

Beat 

crop  shares,  taxable  income 30 

deductions    120 

gross   income    §  359  (1),  42 

farmers     30 

landlord,  where  paid  by  tenant 42, 120 

nonresident    418 

information    at    source §  366  (2),  2S& 

professional  men,  deduction 114 

unpaid,  as  bad  debts 162 

Rents   and   royalties 42 

nonresidents    418 

Repairs 

deduction  of  cost 1 1 1,  113 

tenants    120 

Replacements,    addition    of    cost,    in    determining    capital    sum    to    be 

replaced  by  depreciation  allowance 113,  174 

Residence 

certificate  of   §  366  (J),  267 

defined    503 

depreciation  of    172 

given   up    504 

loss  of  504 

New  York  State,  acquired  after  deducting  and  withholding,  effect  of  269 

sale  of,  deduction  of  loss  in 151 

Resident 
alien 

exemption  of   207 

not  head  of  family 206 

beneficiary,  taxability  of 245 

defined    §  350  (1),  501 

estate  and  trust,  defined 243 

pension  receipts  of,  taxability 41 

return   of    5'21-522 

trust,   defined    243 

who  is    §  350  (1),  501 

retired  pay  of  employees,  taxability 23,  41 

Returns 

accounting    period    changed §  370.,  52S-529 

corporate  dividends   525 

corrected,    when    payable 551 

disclosure  of,  penalties  therefor 581— 5S2 

extension  of  time  for  filing 543 

failure    to    file,    penalties §  37tf.  556 

'false  or  fraudulent,  penalties §  Sfii.  556 

fiduciaries     246 

fiscal  year  ending  in   1919 527 

[ References  in  italics  are  to  sections  of  the  l:i\v  ;  other  references  are  to  articles 
of  the  regulations.] 


Index  G75 

Returns  —  continued 

for   decedent    542 

forms  of   ' 531 

fiduciary 246 

have  ell'ect  of   regulations 531 

nonresident     523 

partnership 230 

resident     522 

guardian    or    committee 248 

husband  and   wife 521 

income   of    minor 524 

information  at  source,  see  information  at  source 

inspection   of    §  38.},  581 

married  persons    521 

minors 624 

necessity 521 

nonresident 523 

obtaining  forms §  $71,  531 

parents    , 524 

partners    229 

partnership   §  368,  226, 230, 231 

peri<xl  covered 526,  521> 

place  of  filing 544 

prescribed  forms  of.  must    be   used 531 

preservation   of    §  38/f  (1),  581 

receivers 250 

resident  individuals   f»2 1 

secrecy    §  38%,  582 

tax  withheld,  see  witliholdiny  <tt  source 270 

termination    of   estate   or   trust 542 

time   of    filing 541 

use   of    prescribed    forms 531 

verification  of §  367,  530 

voluntarily  made  after  due  date §  316  (2),  556 

where  more  than  one  trust 240 

Review  of  determination  of  comptroller,  by  certiorari §  37J 

Revision  of  returns  by  comptroller §  37.),  571 

Revocable  trust,  income  of 2.">1 

Royalties     42 

nonresident     418 

Sailor's    pensions    41 

Salaries  and  wages  of  nonresident  employees  and  officers 

apportionment  of    452 

as    deductions    115-117 

paid   during  war.   deduction 11$) 

paid  to  widow,  of  employee,  deduction IIP 

unpaid,  as  bad  debts 1-62 

[References  in  italics  n  iv  To  sections  of  the  law;  other  references  are  to  articles 
of  the  regulations.] 


676  Index 

Sales 

basis   for    determining   gain   or    loss §  353,  91-101 

bonds  and  other  securities,  nonresident 416 

copyrights    

farm  products  30 

fiduciaries    252 

good  will   33 

installment  plan 

personal  property    34, 39 

real  estate  35-39 

nonresidents    417 

patents  and  copyrights «. . . . 

property  acquired  by  gift  or  inheritance 93 

real  estate 

involving    deferred   payments 36—38 

lots    35 

residence,  loss  by  deduction 151 

stocks  and  rights  31 

nonresident    416 

received  as  dividend 64 

Salesmen 

deduction    of,   traveling   expenses 118 

nonresident,  withholding  at  source  from §  S66  (2),  266 

Salvage  value,  in  computing  depreciation 180 

Sample  room,  traveling  men 118 

Savings  bank  deposits,  constructive  receipt  of  interest 46 

Scientific  corporations,  defined  202 

Scope  of  the  law 1 

Scrapping  machinery,  deduction  of  loss 152 

Scrip,  dividends  paid  in 62 

Secrecy  of  returns §  384,  581-582 

Secret  formulae  or  processes,  depreciation  deduction 173 

Secured  debt  tax,  paid,  income  taxable 74 

Securities 

dealers   in,    definition 220 

dividends  paid   in 62 

inventory  of  dealers 220 

loss  from   shrinkage 154 

payment  in 

value  on  January  1,  1919,  how  determined 92 

worthless    164 

Selling  expense,  deduction Ill 

Separate  returns  by  married  persons 521 

Separation  agreement,  payments  under,  as  income  and  deduction 73, 125 

Shareholders 

building  and  loan  association,  constructive  receipt  of  distributive 

shares    46 

forgiveness  of  indebtedness 43 

[References  in  italics  are  to  sections  of  the  law ;  other  references  are  to  articles 
of  the  regulations.] 


Iivdex  677 

Shares,    partners    229 

Shipwreck,    losses    from,    deduction §  360  (6),  151 

Shrinkage 

crops,    deduction    155 

securities    and   stocks 154 

Sickness 

compensation  paid  during 41 

insurance  and  damages  received,  taxability §  359  (2-e),  72 

pensions,  on  account  of §  859  (2-e),  41 

Sidewalk   assessments,   deduction   of §  860  (3),  143 

Smith-Lever  Act,  taxability  of  salaries,  paid  under 24 

Soldiers'  pensions,  taxability §  859  (2-e),  41 

Special   assessments,   deductions §  360  (3)}  143 

State  Comptroller,  see  comptroller 

State 

contracts,  income  from,  taxable   income 22 

inheritance  taxes,  deduction 144 

interest  upon  obligations  of,  taxability §  359  (2-d),  74 

officers  of,  compensation,  taxability • 24 

taxes,   deductions    §  360  (3),  141 

Statutory  allowance  paid  to  widow  from  estate  or  trust 244 

Stock 

amount  received  from  sale  of  rights  to  subscribe  for,  taxability.  .  31 

assessments  on    125 

bonus,  constructive  receipt  by  employee 45 

compensation    paid   employee  in,   as   taxable    income 25 

dividends,  gross  income §  359  (1),  31,  46,  63,  64 

exchanged    for    other    property 97 

exchanged   for   stock 98, 100 

subsequent  sale  of,  determination  of  gain  or  loss 90 

exemption   from   personal   property  tax,   extent   of §  852 

profits  from  sale  of 31 

shrinkage  in  value  of 154 

worthless,  deduction    154, 164 

Storm 

insurance    against,    deduction 121 

losses  by,  deduction §  360  (6),  151 

Street  assessment,  not  deductible §  360  (3),  143 

Subcontractors,  information  at  source  as  to  payments  to  employees ....  286 
Subscription  for  stock,  amount  received  from  sale  of  right  to,  as  taxable 

income     31 

Subtraction  for  redemption  of  trading  stamps 80 

Sunday,  due  date  for   filing  return 541 

Supplies 

deduction  of  cost  of Ill 

professional  man    114 

Surrender  value  of  insurance  policy 79 

Tariff  duties,  deductions §  360  (3),  142 

[References  in  italics  are  to  sections  of  the  law  :  other  references  are  to  articles 
of  the  regulations.] 


678 

Taxable  year 

computation  of  net  income 

denned     52»> 

gross  income   44r 

Taxes 

abatement    of    572-57:5 

automobile  license   fee,   deductions 141 

customs  duties,  deductions §  36V   (3).  142 

deductions  for §  360  (S),  141-144 

nonresidents     4H:; 

estates  and  trusts 2:15 

deductions    144 

excise,  deductions    §  360   (3),  142 

Federal,   deductions    §  360   (3j.  141 ,  142 

import  duties,  deductions , §  360  (3),  142 

inheritance,    deductions    144 

interest  on 55:> 

liability  of,  estates  and  trusts -. 255 

license,  deductions   142 

local   benefits,   deductions §  360  (3),  141, 143 

nonresidents     401 

paid  by  tenant    12O 

partners  in  partnership  with  fiscal  year  ending  in  19H) ,...'.  232 

penalty  for  nonpayment 553,  556 

rates   of 2 

receipts  for    552 

refunds    572 

repairs,  assessments,  deductions §  360  (3  > ,  143.  574 

sidewalk  assessments    $  360  (3).  143 

special    assessments,    deductions S  360   (3),  143 

stamp,  deductions    142 

street    assessments,    deductions §  360  (3).  143 

tariff  duties,   deductions 8  360   (3  >.  142 

time   payable    §  #77,  551 

trusts     25f> 

withholding    at    source §  366  (ijy  261 

return  of 27*' 

Tax-free  covenant  clause  in  bonds,  tax  as  gross  income 

Tax-free  income 7  f 

Taxpayers 

definition    §  3oO  (2), 

returns 

by  fiduciaries    §  369,  24f> 

for  beneficiaries 247 

estates  and  trusts 24t> 

Telegraph    employees,    taxability    of    compensation    during    period    of 

Federal    control    > 

Telephone    employees,    taxability    of    compensation    during    period    of 

Federal    control 7  - 

[References  in  italics  are  to  sections  of  the  law;  other  references  are  to 
of  the  regulations.] 


679 

Tenant  paying  taxes   120 

Tentative  returns  may  be  required  as  condition  of  extension  of  time.  .  543 

Termination  of  estate  or  trust,  return  to  be  filed  on 542 

Theatrical  costumes,  depreciation,  deductions 172 

Theft  ""  ' 

insurance  premiums  against  loss  by 121 

1  «aei    by,    deductions §  360  (6),  151 

Timber,  depletion §  360   (9),  190 

Time  a*,  of  which  item  of  gross  income  or  deduction  is  to  be  accounted 

for     §  &>#  (1),  12,44,46 

for  filing  returns 541 

extension  of   543 

on  death  or  termination  of  trust 542 

payment  of  tax §  577,  551 

lips,  taxability 23 

Title,  deduction  of  cost  of  defending  or  perfecting 125 

Tools,  ordinary,  farmers' 122 

Trade  brands 

depreciation,  deductions   173 

losses 

deductions §  8&Q  (4),  151 

nonresidents 435 

marks,  depreciation,  deductions   173 

name,  depreciation,  deductions   173 

Trading  stamps,  subtraction  for  redemption 80 

Transfer    tax    deductions 144 

Transients,  definition    502 

Traveling  expenses,  deduction 118 

Treatment  of  excessive  compensation 116 

Trusts,  see  estates  and  trusts 

Uncertified  checks,  payment  of  tax 554 

Uncompleted  contracts,  ascertainment  of  gross  income 29 

Understatement   of   income   in   return 571 

United  States 

employees  and  officers,  taxability  of  salaries §  555   (2-f),  78 

exemption  of  employees §  362  (3) ,  210 

interest  on  obligations  of,  taxability §  359  (2-d),  74 

officer  and  employee  of,  personal  exemption §  362  ($),  210 

pensions  from,  taxability 41 

taxes,    deductions    §  S60  (3),  141 

Universities,   employees   of,   taxability   of   salaries   paid  from    Smith- 
Lever   Act    24 

Unpaid  rents 

aa  bad  debts 162 

salaries,  as  bad  debts 162 

wages,  as  bad  debts 162 

Useful  value,  loss  of 153 

Use  of  prescribed  forma f  371,  531 

[References  in  italics  are  to  sections  of  the  law  ;  other  references  are  to  articles 
of  the  regulations.] 


680  Index 

Valuation 

change  in  methods  of 217 

inventories    217 

Value 

ascertainment    

fair  market  , 

product  received  in  exchange  for  farm  produce,  return  as  income.  .         30 
real  estate,  sold  in  lots 

Verification   of   returns §  307,       530 

Vocational  rehabilitation  fund,  deduction  of  contribution  to 201 

Voluntary  absence 

of  wife  or  husband 207 

removal  of  buildings,  deduction  of  loss 152 

returns  after  due  date 556 


deduction  of  payments Ill 

nonresident  seamen    453 

paid  to  widow  or  employee,  deduction 119 

unpaid,  as  bad  debts 162 

War  chest  gifts 

deductions    201 

finance  bonds,  taxability 74 

risk  insurance,  taxability  of  allotments  and  allowances 41,  72 

Warrant  for  collection  of  taxes,  has  effect  of  judgment §  S80 

Warrants,  payments  in    

Wear  and  tear  of  property,  deductions 171 

When  charge  is  deductible 123 

Who  is  a  resident 501 

Withholding  at  the  source §  366  (1),  261-270 

agent,   defined    §  350  (10),  281 

annual  or  periodical   income 263 

fixed  or  determinable  income 263 

income  not  subject  to 265 

in  1919   262 

no   return   of   information    respecting  payments    on   which   there 

has  been  withholding 283 

payments  on  which  required 263 

other  than  cash 263 

period  of  time  covered 264 

refund  of  excessive  amount  withheld 523 

residence  certificate   267 

renewal  of   268 

return  of  tax  withheld 270 

services    performed    partly    within    and    partly    without,    appor- 
tionment of  266 

[References  in  italics  are  to  sections  of  the  law ;  other  references  are  to  articles 
of  the  regulations.] 


Index  681 

Withholding  at  the  source  —  continued 

when  required  263 

not  required    265 

where  residence  is  established 2)69 

withholding    agent,   defined 281 

year  for  purpose  of 264 

Workmen's  compensation,  taxability  of  amount  received.. §  359  (2-d),  41 

Worthless  mortgage  debt 

bad  debts   163 

securities,  deduction~of  losses 154, 164 

Year,  for  purpose  of  deducting  and  withholding 264 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN     INITIAL     FINE    OF    25     CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  5O  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


MAT  1   1933 

2Apr'49HJ 
2Apr'4'.: 

SHRa/SOC 


LD  21-50m-l,'3£ 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


